-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DqyZ2k3sJelZVahEEb+5oU5rQXaPTBXHFJUnjvWTjSnH5A/4sm6/FVo1h+GTv5/J HFy5EVK3Mja7sSr7k5r3YA== 0000855108-96-000012.txt : 19960105 0000855108-96-000012.hdr.sgml : 19960105 ACCESSION NUMBER: 0000855108-96-000012 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960104 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FEDERATED MUNICIPAL TRUST CENTRAL INDEX KEY: 0000855108 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-31259 FILM NUMBER: 96500744 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TOWER CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122887496 497 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONNECTICUT MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS The Institutional Service Shares of Connecticut Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Connecticut municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Connecticut, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and the Connecticut Dividend and Interest Income Tax consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Connecticut Municipal Securities 5 Investment Risks 6 Non-Diversification 6 Investment Limitations 6 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Institutional Service Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ Special Purchase Features 10 HOW TO REDEEM SHARES 10 - ------------------------------------------------------ Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 11 - ------------------------------------------------------ TAX INFORMATION 12 - ------------------------------------------------------ Federal Income Tax 12 State and Local Taxes 12 PERFORMANCE INFORMATION 13 - ------------------------------------------------------ FINANCIAL STATEMENTS 14 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 25 - ------------------------------------------------------ ADDRESSES 26 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................................. None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)................................................. None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................... None Redemption Fee (as a percentage of amount redeemed, if applicable).................... None Exchange Fee.......................................................................... None ANNUAL INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)..................................................... 0.31% 12b-1 Fee............................................................................. None Total Other Expenses.................................................................. 0.29% Shareholder Services Fee (after waiver) (2).................................. 0.14% Total Operating Expenses (3)..................................................... 0.60%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The maximum shareholder services fee is 0.25%. (3) The total operating expenses would have been 0.90% absent the voluntary waivers of a portion of the management fee and a portion of the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Trust will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information". Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ----------------------------------------------------------------------------------------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period........... $ 6 $ 19 $ 33 $ 75
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. CONNECTICUT MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 25.
YEAR ENDED OCTOBER 31, -------------------------------------------------------------- 1995 1994 1993** 1992 1991 1990(A) ------ ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $1.00 $ 1.00 $ 1.00 $ 1.00 - ---------------------------------- INCOME FROM INVESTMENT OPERATIONS - ---------------------------------- Net investment income 0.03 0.02 0.02 0.03 0.04 0.05 - ---------------------------------- LESS DISTRIBUTIONS - ---------------------------------- Distributions from net investment income (0.03) (0.02) (0.02 ) (0.03) (0.04) (0.05 ) - ---------------------------------- ------ ------ ----- ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $1.00 $ 1.00 $ 1.00 $ 1.00 - ---------------------------------- ------ ------ ----- ------ ------ ------ TOTAL RETURN (B) 3.31% 2.12% 1.96 % 2.68% 4.04% 5.54 % - ---------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------- Expenses 0.60% 0.59% 0.57 % 0.56% 0.56% 0.48 %* - ---------------------------------- Net investment income 3.26% 2.11% 1.95 % 2.66% 3.94% 5.32 %* - ---------------------------------- Expense waiver/reimbursement (c) 0.30% 0.18% 0.25 % 0.30% 0.21% 0.28 %* - ---------------------------------- SUPPLEMENTAL DATA - ---------------------------------- Net assets, end of period (000 omitted) $184,718 $190,423 $140,446 $140,118 $140,113 $138,738 - ----------------------------------
* Computed on an annualized basis. ** Prior to November 6, 1992, the Fund provided two classes of shares. (a) Reflects operations for the period from November 1, 1989 (date of initial public investment) to October 31, 1990. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The Fund is designed for financial institutions acting in an agency or fiduciary capacity as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term Connecticut municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Connecticut taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and Connecticut Dividend and Interest Income Tax consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Connecticut municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and the Connecticut Dividend and Interest Income Tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Connecticut and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and the Connecticut Dividend and Interest Income Tax ("Connecticut Municipal Securities"). Examples of Connecticut Municipal Securities include, but are not limited to: - tax and revenue anticipation notes ("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 debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Connecticut Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Connecticut Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Connecticut Municipal Securities is subject to the federal alternative minimum tax. CONNECTICUT MUNICIPAL SECURITIES Connecticut Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Connecticut Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Connecticut Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Connecticut Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Connecticut Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Connecticut Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Connecticut Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Connecticut Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Connecticut Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. This investment limitation cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989 is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES Federated Securities Corp. is the principal distributor for Institutional Service Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. SHAREHOLDER SERVICES AGREEMENT. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of the Institutional Service Shares, computed at an annual rate, to provide personal services for shareholders and to provide the maintenance of shareholder accounts (shareholder services). From time to time, and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. With respect to Institutional Service Shares, in addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance will be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS - --------------------- ---------------------------------- .15 of 1% on the first $250 million .125 of 1% on the next $250 million .10 of 1% on the next $250 million on assets in excess of $750 .075 of 1% 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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of Institutional Service Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting total liabilities from total assets and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $25,000 within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o of State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Connecticut Municipal Cash Trust, Institutional Service Shares; Fund Number (This number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to Connecticut Municipal Cash Trust--Institutional Service Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If shares certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. The check writing service allows shareholders to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio, only shares of that portfolio are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Connecticut. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. CONNECTICUT TAXES. Under existing Connecticut laws, distributions made by the Fund will not be subject to Connecticut individual income taxes to the extent that such distributions qualify as exempt interest dividends under the Internal Revenue Code, and represent (i) interest on obligations issued by the State of Connecticut, any political subdivision thereof or public instrumentality, state or local authority, district, or similar public entity created under the laws of the State of Connecticut, and (ii) interest on obligations the income of which may not, by federal law, be taxed by a state, such as bonds issued by the government of Puerto Rico. Conversely, to the extent that the distributions made by the Fund are derived from other types of obligations, such dividends will be subject to Connecticut income taxes. Distributions from the Fund to a shareholder subject to the Connecticut corporation business tax are not eligible for the dividends received deduction under the Connecticut corporation business tax and therefore are included in the taxable income of a tax payer to the extent such distributions are treated as either exempt-interest dividends or capital gains dividends for federal income tax purposes. All other distributions from the Fund are eligible for the Connecticut corporation business tax dividends received deduction. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield for shares. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the shares' tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. CONNECTICUT MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--99.1% - ------------------------------------------------------------------------ CONNECTICUT--94.5% ------------------------------------------------------ $ 2,310,000 Berlin, CT, 4.00% BANs, 6/27/1996 NR(3) $ 2,316,552 ------------------------------------------------------ 3,750,000 Capitol Region Education Council, CT, 5.35% BANs (First National Bank of Boston, MA LOC), 11/15/1995 P-1 3,750,479 ------------------------------------------------------ 4,100,000 Cheshire, CT, 4.25% BANs, 8/9/1996 NR(2) 4,118,277 ------------------------------------------------------ 9,933,170 (a) Clipper Connecticut Tax Exempt Trust, (Series 1994-1) Weekly VRDNs (State Street Bank and Trust Co. LIQ) VMIG1 9,933,170 ------------------------------------------------------ 2,640,000 Connecticut Development Authority Weekly VRDNs (Banta Associates)/(Marine Midland Bank N.A., Buffalo, NY LOC) P-1 2,640,000 ------------------------------------------------------ 4,200,000 Connecticut Development Authority Weekly VRDNs (Capital District Energy Center)/(Canadian Imperial Bank of Commerce, Toronto LOC) P-1 4,200,000 ------------------------------------------------------ 700,000 Connecticut Development Authority Weekly VRDNs (Capital District Energy Center)/(Canadian Imperial Bank of Commerce, Toronto LOC) P-1 700,000 ------------------------------------------------------ 4,500,000 Connecticut Development Authority Weekly VRDNs (Jewish Community Center (New Haven, CT))/(Fleet National Bank, Providence, R.I. LOC) P-1 4,500,000 ------------------------------------------------------ 1,466,000 Connecticut Development Authority Weekly VRDNs (RSA Corp.)/(Barclays Bank PLC, London LOC) P-1 1,466,000 ------------------------------------------------------ 1,030,000 Connecticut Development Authority, (Series 1985) Weekly VRDNs (Martin-Brower Company Project)/(ABN AMRO Bank N.V., Amsterdam LOC) P-1 1,030,000 ------------------------------------------------------ 5,000,000 Connecticut Development Authority, (Series 1993) Weekly VRDNs (Rand-Whitney Containerboard Limited Partnership)/(Chase Manhattan Bank N.A., New York LOC) A-1 5,000,000 ------------------------------------------------------ 11,000,000 Connecticut Development Authority, (Series A) Weekly VRDNs (Exeter Energy)/(Sanwa Bank Ltd, Osaka LOC) A-1 11,000,000 ------------------------------------------------------
CONNECTICUT MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE ---------- ---- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ CONNECTICUT--CONTINUED ------------------------------------------------------ $ 1,000,000 Connecticut Development Authority, (Series B) Weekly VRDNs (Exeter Energy)/(Sanwa Bank Ltd, Osaka LOC) A-1 $ 1,000,000 ------------------------------------------------------ 7,499,000 Connecticut Development Authority, (Series C) Weekly VRDNs (Exeter Energy)/(Sanwa Bank Ltd, Osaka LOC) A-1 7,499,000 ------------------------------------------------------ 2,000,000 Connecticut Development Authority, PCR (Series 1993A) Weekly VRDNs (Connecticut Light & Power Co.)/ (Deutsche Bank, AG LOC) A-1 2,000,000 ------------------------------------------------------ 2,000,000 Connecticut Development Authority, PCR (Series 1993A) Weekly VRDNs (Western Mass Electric Co.)/(Union Bank of Switzerland, Zurich LOC) A-1 2,000,000 ------------------------------------------------------ 1,500,000 Connecticut Development Authority, PCR Refunding Bonds (Series 1993B) Weekly VRDNs (Connecticut Light & Power Co.)/(Union Bank of Switzerland, Zurich LOC) A-1 1,500,000 ------------------------------------------------------ 6,700,000 Connecticut Municipal Electric Energy Cooperative, Power Supply System Revenue Bonds (1995 Series A), 3.70% CP (Fleet National Bank, Providence, R.I. LOC), Mandatory Tender 2/13/1996 P-1 6,700,000 ------------------------------------------------------ 1,600,000 Connecticut State HEFA Weekly VRDNs (Charlotte Hungerfield Hospital)/(Mitsubishi Bank Ltd, Tokyo LOC) VMIG1 1,600,000 ------------------------------------------------------ 3,800,000 Connecticut State HEFA, (Series A) Weekly VRDNs (Forman School Issue)/(National Westminster Bank, PLC, London LOC) A-1+ 3,800,000 ------------------------------------------------------ 3,875,000 Connecticut State HEFA, (Series L), 3.70% CP (Yale University), Mandatory Tender 11/7/1995 A-1+ 3,875,000 ------------------------------------------------------ 4,300,000 Connecticut State HEFA, (Series N), 3.50% CP (Yale University), Mandatory Tender 11/13/1995 A-1+ 4,300,000 ------------------------------------------------------ 5,000,000 Connecticut State HEFA, 3.60% CP (Windham Community Memorial Hospital)/(Banque Paribas, Paris LOC), Mandatory Tender 11/21/1995 A-1 5,000,000 ------------------------------------------------------ 8,900,000 Connecticut State HEFA, Revenue Bonds (Series B) Weekly VRDNs (Bridgeport Hospital Issue)/(Fuji Bank, Ltd., Tokyo LOC) A-1 8,900,000 ------------------------------------------------------
CONNECTICUT MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE ---------- ---- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ CONNECTICUT--CONTINUED ------------------------------------------------------ $ 1,000,000 Connecticut State HEFA, Variable Rate Demand Revenue Bonds (Series A) Weekly VRDNs (Pomfret School Issue)/ (Credit Local de France LOC) VMIG1 $ 1,000,000 ------------------------------------------------------ 5,250,000 Connecticut State HFA, (Series 1990C), 3.90% CP, Mandatory Tender 1/22/1996 A-1+ 5,250,000 ------------------------------------------------------ 1,500,000 Connecticut State HFA, (Series 1990C), 3.95% CP, Mandatory Tender 11/16/1995 A-1+ 1,500,000 ------------------------------------------------------ 3,200,000 Connecticut State HFA, (Series 1990D), 3.80% CP, Mandatory Tender 12/8/1995 A-1+ 3,200,000 ------------------------------------------------------ 3,245,000 Connecticut State HFA, (Series 1990D), 3.90% CP, Mandatory Tender 1/22/1996 A-1+ 3,245,000 ------------------------------------------------------ 4,100,000 Connecticut State Resource Recovery Authority, 4.00% RANs (Fleet National Bank, Providence, R.I. LOC), 6/21/1996 P-1 4,107,538 ------------------------------------------------------ 1,910,000 Connecticut State Weekly VRDNs (Merrill Lynch Capital Services, Inc. LIQ) VMIG1 1,910,000 ------------------------------------------------------ 2,100,000 Connecticut State, Economic Recovery Notes Weekly VRDNs A-1+ 2,100,000 ------------------------------------------------------ 12,000,000 Connecticut State, Special Assessment Unemployment Compensation Advance Fund, Revenue Bonds (Series 1993C), 3.90% TOBs (FGIC INS)/(FGIC Securities Purchase, Inc. LIQ), Mandatory Tender 7/1/1996 A-1+ 12,000,000 ------------------------------------------------------ 4,325,000 Groton City, CT, 4.50% BANs, 11/15/1995 NR(3) 4,325,754 ------------------------------------------------------ 8,000,000 Hartford, CT Redevelopment Authority Weekly VRDNs (Underwood Towers)/(FSA INS)/(Barclays Bank PLC, London LIQ) A-1+ 8,000,000 ------------------------------------------------------ 9,475,000 Meriden, CT, (Lot B), 4.25% BANs, 8/14/1996 NR(3) 9,496,990 ------------------------------------------------------ 1,480,000 Middlebury, CT, (Lot B), 5.00% BANs, 2/8/1996 NR(1) 1,480,765 ------------------------------------------------------ 3,200,000 Milford, CT, 4.56% BANs, 11/15/1995 NR(2) 3,200,305 ------------------------------------------------------ 1,700,000 New Haven, CT Weekly VRDNs (Starter Sportswear)/ (National Westminster Bank USA, NY LOC) P-1 1,700,000 ------------------------------------------------------ 3,415,000 Rocky Hill, CT, 4.25% BANs, 12/15/1995 NR(3) 3,416,166 ------------------------------------------------------
CONNECTICUT MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE ---------- ---- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ CONNECTICUT--CONTINUED ------------------------------------------------------ $ 7,500,000 Stamford, CT Housing Authority, Multi-Modal Interchangeable Rate Revenue Bonds (Series 1994) Weekly VRDNs (Morgan Street Project)/(Deutsche Bank, AG LOC) VMIG1 $ 7,500,000 ------------------------------------------------------ 2,200,000 Waterbury, CT, 4.75% BANs, 4/25/1996 NR 2,203,615 ------------------------------------------------------ ------------ Total 174,464,611 ------------------------------------------------------ ------------ PUERTO RICO--4.6% ------------------------------------------------------ 3,500,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1988), 3.65% CP (Inter American University of Puerto Rico)/(Bank of Tokyo Ltd., Tokyo LOC), Mandatory Tender 12/14/1995 A-1 3,500,000 ------------------------------------------------------ 5,000,000 Puerto Rico Public Building Authority, (PA-106) Weekly VRDNs (AMBAC INS)/(Merrill Lynch Capital Services, Inc. LIQ) Aaa 5,000,000 ------------------------------------------------------ ------------ Total 8,500,000 ------------------------------------------------------ ------------ TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $182,964,611 ------------------------------------------------------ ------------
Securities that are subject to Alternative Minimum Tax represent 25.4% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Denotes a restricted security which is subject to restrictions or resale under Federal Securities laws. This security has been determined to be liquid under criteria established by the Board of Trustees. At the end of the period, this security amounts to $9,933,170 which represents 5% of net assets. (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($184,718,216) at October 31, 1995. CONNECTICUT MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronyms are used throughout this portfolio: AMBAC -- American Municipal Bond Assurance Corporation BANs -- Bond Anticipation Notes CP -- Commercial Paper FGIC -- Financial Guaranty Insurance Company FSA -- Financial Security Assurance HEFA -- Health and Education Facilities Authority HFA -- Housing Finance Authority INS -- Insured LIQ -- Liquidity Agreement LOC -- Letter of Credit PCA -- Pollution Control Authority PCR -- Pollution Control Revenue PLC -- Public Limited Company RANs -- Revenue Anticipation Notes TOBs -- Tender Option Bonds VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) CONNECTICUT MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $182,964,611 - ------------------------------------------------------------------------------- Cash 705,547 - ------------------------------------------------------------------------------- Income receivable 1,432,431 - ------------------------------------------------------------------------------- ------------ Total assets 185,102,589 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for shares redeemed $ 64,801 - -------------------------------------------------------------------- Income distribution payable 275,299 - -------------------------------------------------------------------- Accrued expenses 44,273 - -------------------------------------------------------------------- -------- Total liabilities 384,373 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 184,718,216 shares outstanding $184,718,216 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: $184,718,216 / 184,718,216 shares outstanding $ 1.00 - ------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) CONNECTICUT MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------- Interest $8,198,696 - ---------------------------------------------------------------------------------- EXPENSES: - ---------------------------------------------------------------------------------- Investment advisory fee $1,064,090 - ------------------------------------------------------------------- Administrative personnel and services fee 161,103 - ------------------------------------------------------------------- Custodian fees 41,840 - ------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 24,663 - ------------------------------------------------------------------- Directors'/Trustees' fees 2,749 - ------------------------------------------------------------------- Auditing fees 13,322 - ------------------------------------------------------------------- Legal fees 1,627 - ------------------------------------------------------------------- Portfolio accounting fees 42,127 - ------------------------------------------------------------------- Shareholder services fee 532,055 - ------------------------------------------------------------------- Share registration costs 6,442 - ------------------------------------------------------------------- Printing and postage 11,181 - ------------------------------------------------------------------- Insurance premiums 5,343 - ------------------------------------------------------------------- Taxes 2,619 - ------------------------------------------------------------------- Miscellaneous 1,373 - ------------------------------------------------------------------- ---------- Total expenses 1,910,534 - ------------------------------------------------------------------- Waivers-- - ------------------------------------------------------------------- Waiver of investment advisory fee $(400,553) - ------------------------------------------------------- Waiver of shareholder services fee (242,434) - ------------------------------------------------------- --------- Total waivers (642,987) - ------------------------------------------------------------------- ---------- Net expenses 1,267,547 - ---------------------------------------------------------------------------------- ---------- Net investment income $6,931,149 - ---------------------------------------------------------------------------------- ----------
(See Notes which are an integral part of the Financial Statements) CONNECTICUT MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ------------------------------- 1995 1994 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------------- OPERATIONS-- - ------------------------------------------------------------- Net investment income $ 6,931,149 $ 4,066,496 - ------------------------------------------------------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ------------------------------------------------------------- Distributions from net investment income (6,931,149) (4,066,496) - ----------------------------------------------------------------------------- ------------- SHARE TRANSACTIONS-- - ------------------------------------------------------------- Proceeds from sale of shares 522,140,169 486,727,225 - ------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 1,971,315 1,166,410 - ------------------------------------------------------------- Cost of shares redeemed (529,816,470) (437,916,644) - ------------------------------------------------------------- ------------- ------------- Change in net assets resulting from share transactions (5,704,986) 49,976,991 - ------------------------------------------------------------- ------------- ------------- Change in net assets (5,704,986) 49,976,991 - ------------------------------------------------------------- NET ASSETS: - ------------------------------------------------------------- Beginning of period 190,423,202 140,446,211 - ------------------------------------------------------------- ------------- ------------- End of period $ 184,718,216 $ 190,423,202 - ------------------------------------------------------------- ------------- -------------
(See Notes which are an integral part of the Financial Statements) CONNECTICUT MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Connecticut Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers in state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 64% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or supported (backed) by a letter of credit for any one institution or agency do not exceed 11% of total investments RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand CONNECTICUT MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1995 is as follows:
ACQUISITION ACQUISITION SECURITY DATE COST ------------------------------------------------------------ ------------- ------------- Clipper Connecticut Tax Exempt Trust (Series 1994-1) May 6, 1994 $9,933,170 Weekly VRDN's (State Street Bank and Trust Co. LIQ)
OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). At October 31, 1995, capital paid-in aggregated $184,718,216. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, ----------------------------- INSTITUTIONAL SERVICE SHARES 1995 1994 - --------------------------------------------------------------- ------------ ------------ Shares sold 522,140,169 486,727,225 - --------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,971,315 1,166,410 - --------------------------------------------------------------- Shares redeemed (529,816,470) (437,916,644) - --------------------------------------------------------------- ------------ ------------ Net change resulting from share transactions (5,704,986) 49,976,991 - --------------------------------------------------------------- ------------ ------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net assets of the Fund for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. CONNECTICUT MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company,("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS--During the period ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common Officers. These transactions were made at current market value pursuant to rule 17a-7 under the Act amounting to $259,440,000 and $290,790,000 respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Connecticut Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Connecticut Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended and the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights (see page 2 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Connecticut Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 ADDRESSES - -------------------------------------------------------------------------------- Connecticut Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 - ------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - ------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONNECTICUT MUNICIPAL CASH TRUST INSTITUTIONAL SERVICE SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 CUSIP 314229105 9101004 A-SS (12/95) CONNECTICUT MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus of Connecticut Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal Trust ( the "Trust") dated December 31, 1995. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-235-4669. FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 Statement dated December 31, 1995 Federated Securities Corp. Distributor A subsidiary of Federated Investors INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued And Delayed Delivery Transactions 1 Repurchase Agreements 2 Credit Enhancement 2 CONNECTICUT INVESTMENT RISKS 2 INVESTMENT LIMITATIONS 3 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 The Funds 9 Share Ownership 9 Trustees Compensation 10 Trustee Liability 10 INVESTMENT ADVISORY SERVICES 11 Investment Adviser 11 Advisory Fees 11 BROKERAGE TRANSACTIONS 11 OTHER SERVICES 12 Fund Administration 12 Custodian and Portfolio Recordkeeper 12 Transfer Agent 12 Independent Public Accountants 12 SHAREHOLDER SERVICES AGREEMENT 12 DETERMINING NET ASSET VALUE 12 REDEMPTION IN KIND 13 MASSACHUSETTS PARTNERSHIP LAW 13 THE FUND'S TAX STATUS 13 PERFORMANCE INFORMATION 13 Yield 13 Effective Yield 13 Tax-Equivalent Yield 14 Tax-Equivalency Table 14 Total Return 14 Performance Comparisons 15 ABOUT FEDERATED INVESTORS 15 Mutual Fund Market 15 Institutional Clients 15 Trust Organizations 16 Broker/Dealers and Bank Broker/Dealer Subsidiaries 16 APPENDIX 17 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security, the issuer of any demand feature applicable to the security, or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing participation interests having a seven day demand feature, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of non-appropriation"); and any credit enhancement or legal recourse provided upon an event of non- appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1, or 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 rating categories. See "Regulatory Compliance." WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated on the Fund`s records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, brokers/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit-enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the "credit enhancer"), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. CONNECTICUT INVESTMENT RISKS The Fund invests in obligations of Connecticut issuers which results in the Fund's performance being subject to risks associated with the overall conditions present within Connecticut (the "State"). The following information is a brief summary of the recent prevailing economic conditions and a general summary of the State's financial status. This information is based on official statements relating to securities that have been offered by Connecticut issuers and from other sources believed to be reliable but should not be relied upon as a complete description of all relevant information. The State has maintained relative fiscal balance for the last few fiscal years after several years of deficits in the late 1980's when the State and national economy entered a recession. The State enacted an individual income tax while decreasing the sales tax in 1991 in an attempt to provide better stability to the State's revenue sources. The State also benefits from a level of per capital income that is among the highest in the country and a highly educated and skilled work force. The Connecticut economy is largely composed of manufacturing (concentrated in defense and aircraft) and service industries (such as insurance and finance) that were robust and growing for much of the past two decades. Beginning in the late 1980's, the national economy slowed down and entered a recession that has affected several areas of the State's economy. Specifically, the cutbacks in the defense and insurance industries and general corporate restructuring have resulted in the loss of over 9% of the labor force. More recently, the Connecticut economy has experienced a slight recovery, however at a slower pace than the nation and there are signs that this recovery may be slowing. Additionally, public policy in taxes as well as expenditure control will affect the state going forward. The overall financial condition of the State can also be illustrated by changes of its debt ratings. During the period in which the State has experienced financial difficulties in the late 1980's, its general obligation long-term debt ratings as determined by Moody's and S&P decreased from Aa1 and AA+, respectively, to Aa and AA-. The Fund's concentration in securities issued by the State and its political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. The ability of the State or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the State; and the underlying fiscal condition of the State and its municipalities. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as are necessary for the clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of the value of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of its total assets at the time of the pledge. DIVERSIFICATION OF INVESTMENTS At the close of each quarter of each fiscal year, no more than 25% of the Fund's total assets will be invested in the securities of a single issuer, but, with regard to at least 50% of the Fund's total assets, no more than 5% of the Fund's total assets are to be invested in securities of a single issuer. Under this limitation, each governmental subdivision, including states, territories, possessions of the United States, or their political subdivisions, agencies, authorities, instrumentalities, or similar entities, will be considered a separate issuer if its assets and revenues are separate from those of the government body creating it and the security is backed only by its own assets and revenues. Industrial development bonds backed only by the assets and revenues of a non- governmental user are considered to be issued solely by that user. If in the case of an industrial development bond or government-issued security, a governmental or other entity guarantees the security, such guarantee would be considered a separate security issued by the guarantor, as well as the other issuer, subject to limited exclusions allowed by the Investment Company Act of 1940. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may acquire publicly or nonpublicly issued Connecticut municipal securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies, and limitations. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities, if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry, or in industrial development bonds or other securities the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above limitations cannot be changed without shareholder approval. The following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers (including companies responsible for paying principal and interest on industrial development bonds) which have records of less than three years of continuous operations, including the operation of any predecessor. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF THE TRUST The Fund will not purchase or retain the securities of any issuer if the Officers and Trustees of the Trust or its investment adviser, owning individually more than .50 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. INVESTING IN MINERALS The Fund will not purchase or sell interests in oil, gas, or other mineral exploration or development programs or leases, although it may purchase the securities of issuers which invest in or sponsor such programs. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments, as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its ability to participate in volume transactions will be to the benefit of the Fund. FEDERATED MUNICIPAL TRUST MANAGEMENT OFFICERS AND TRUSTEES ARE LISTED WITH THEIR ADDRESSES, BIRTHDATES, PRESENT POSITIONS WITH FEDERATED MUNICIPAL TRUST, AND PRINCIPAL OCCUPATIONS. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President of the Trust . Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds; formerly, Senior Partner, Ernst & Young LLP. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; President, Northgate Village Development Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Director, Trustee, or Managing General Partner of the Funds; formerly, President, Naples Property Management, Inc. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee, or Managing General Partner of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine and Member, Board of Trustees, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director, Trustee, or Managing General Partner of the Funds. Edward L. Flaherty, Jr.@ Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director, Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson * Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. and Federated Administrative Services. Peter E. Madden Seacliff 562 Bellevue Avenue Newport, RI Birthdate: March 16, 1942 Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, Trustee, or Managing General Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation. Gregor F. Meyer Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General Partner of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director, Trustee or Managing General Partner of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics and Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; founding Chairman, National Advisory Council for Environmental Policy and Technology and Federal Emergency Management Advisory Board. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/marketing consultant; Conference Coordinator, Non-profit entities; Director, Trustee, or Managing General Partner of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative Services, Federated Services Company, and Federated Shareholder Services; 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 of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. David M. Taylor Federated Investors Tower Pittsburgh, PA Birthdate: January 13, 1947 Treasurer Senior Vice President, Controller, and Trustee, Federated Investors; Controller, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., and Passport Research, Ltd.; Senior Vice President, Federated Shareholder Services; Vice President, Federated Administrative Services; Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President and Secretary Executive Vice President, Secretary, General Counsel, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds. * This Trustee is deemed to be an "interested person" as defined in the Investment Company Act of 1940, as amended. @ Member of the 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 As used in the table above, "The Funds" and "Funds" mean the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; 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; 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 U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free Instruments Trust; Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The Virtus Funds; World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees own less than 1% of the Trust`s outstanding shares. As of December 4, 1995, the following shareholders of record owned 5% or more of the outstanding shares of the Connecticut Municipal Cash Trust: State Street Bank and Trust Company, North Quincy, MA, owned approximately 11,130,506 shares (5.23%); Anderson & Co., Philadelphia, PA, owned approximately 39,624,841 shares (18.63%); and Fleet Securities Corp., Rochester, NY, owned approximately 49,196,329 shares (23.14%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID CORPORATION CORPORATION*# FROM FUND COMPLEX + John F. Donahue, $0 $0 for the Fund and Chairman and Director 68 other investment companies in the Fund Complex Thomas G. Bigley,$2,458 $20,688 for the Fund and Director 49 other investment companies in the Fund Complex John T. Conroy, $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex William J. Copeland, $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex James E. Dowd, $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex Lawrence D. Ellis, M.D., $3,266 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex Edward L. Flaherty, Jr., $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex Peter E. Madden, $2,757 $90,563 for the Fund and Director 64 other investment companies in the Fund Complex Gregor F. Meyer, $3,166 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex John E. Murray, Jr., $1,762 $0 for the Fund and Director 64 other investment companies in the Fund Complex Wesley W. Posvar,$3,166 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex Marjorie P. Smuts, $3,166 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1995. #The aggregate compensation is provided for the Trust which is comprised of 15 portfolios. +The information is provided for the last calendar year. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1995, 1994, and 1993, the adviser earned $1,064,090, $961,837, and $666,093, respectively, of which $400,553, $337,400, and $388,530, respectively, was voluntarily waived. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this 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 fees. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. shareholders. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal years ended October 31, 1995 , 1994, and 1993, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc., also a subsidiary of Federated Investors, served as the Fund's Administrator. (For purposes of this Statement of Additional Information, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the "Administrators".) For the fiscal years ended October 31, 1995, 1994 and 1993, the Administrators earned $161,103, $198,789, and $268,954, respectively. Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, holds approximately 20% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. CUSTODIAN AND PORTFOLIO RECORDKEEPER State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. TRANSFER AGENT As transfer agent, Federated Services Company maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES AGREEMENT This arrangement permits the payment of fees to Federated Shareholder Services and financial institutions to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balance; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Trustees expect that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal period ending October 31,1995, the Fund paid Shareholder Services fees in the amount of $532,055, of which $242,434 was waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. The Fund's yield for the seven-day period ended October 31, 1995, was 3.30%. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. The Fund's effective yield for the seven-day period ended October 31, 1995, was 3.36%. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal rate for individuals) and assuming that income is 100% exempt. The Fund's tax-equivalent yield for the seven-day period ended October 31, 1995, was 6.01%. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a "tax-free" investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1995 STATE OF CONNECTICUT TAX BRACKET: FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60% COMBINED FEDERAL AND STATE 19.50% 32.50% 35.50% 40.50% 44.10% JOINT $1- $39,001- $94,251- $143,601- OVER RETURN: 39,000 94,250 143,600 256,500 $256,500 SINGLE $1- $23,351- $56,551- $117,951- OVER RETURN: 23,350 56,550 117,950 256,500 $256,500 TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT 1.50% 1.86% 2.22% 2.33% 2.52% 2.68% 2.00 2.48 2.96 3.10 3.36 3.58 2.50 3.11 3.70 3.88 4.20 4.47 3.00 3.73 4.44 4.65 5.04 5.37 3.50 4.35 5.19 5.43 5.88 6.26 4.00 4.97 5.93 6.20 6.72 7.16 4.50 5.59 6.67 6.98 7.56 8.05 5.00 6.21 7.41 7.75 8.40 8.94 5.50 6.83 8.15 8.53 9.24 9.84 6.00 7.45 8.89 9.30 10.08 10.73 NOTE: THE MAXIMUM MARGINAL TAX RATE FOR EACH BRACKET WAS USED IN CALCULATING THE TAXABLE YIELD EQUIVALENT. FURTHERMORE, ADDITIONAL STATE AND LOCAL TAXES PAID ON COMPARABLE TAXABLE INVESTMENTS WERE NOT USED TO INCREASE FEDERAL DEDUCTIONS. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of Fund shares. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local income taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. The Fund's average annual total returns for the one-year period ended October 31, 1995 and for the period from November 1, 1989 (date of initial public investment) through ended October 31, 1995 were 3.31% and 3.27%, respectively. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: O LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. o MONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1994, Federated Investors managed more than $31 billion in assets across approximately 43 money market funds, including 17 government, 8 prime and 18 municipal with assets approximating $17 billion, $7.4 billion and $6.6 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors's equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors's domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors's international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $2 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated Investors funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated Investors mutual funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms-- supported by more wholesalers than any other mutual fund distributor. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity concerns and market access risks unique to notes. SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus sign (+) designation. SP-2 Satisfactory capacity to pay principal and interest. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a variable rate demand feature. The first rating (long-term rating) addresses the likelihood of repayment of principal and interest when due, and the second rating (short-term rating) describes the demand characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. LONG-TERM DEBT RATINGS AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rate "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATINGS Moody's Investor Service, Inc. (Moody's) short-term ratings are designated Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG ratings is to provide investors with a simple system by which the relative investment qualities of short-term obligations may be evaluated. MIG1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad based access to the market for refinancing. MIG2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. In this case, two ratings are usually assigned, (for example, AAA/VMIG-1); the first representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the second representing an evaluation of the degree of risk associated with the demand feature. The VMIG rating can be assigned a 1 or 2 designation using the same definitions described above for the MIG rating. COMMERCIAL PAPER (CP) RATINGS P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well established industries, high rates of return on funds employed, conservative capitalization structure with moderate reliance on debt and ample asset protection, broad margins in earning coverage of fixed financial charges and high internal cash generation, well-established access to a range of financial markets and assured sources of alternate liquidity P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. LONG-TERM DEBT RATINGS AAA Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes is can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in AAA securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. NR Indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P or Moody's with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated A-1 or P-1. NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated "AAA" by S&P or "AAA" by Moody's. NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated "AA" by S&P or "AA" by Moody's. NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated "A" by S&P or Moody's. 314229105 9101004 B-SS (12/95) PENNSYLVANIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH SERIES SHARES PROSPECTUS The Cash Series Shares of Pennsylvania Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Pennsylvania municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Pennsylvania, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--CASH SERIES SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Pennsylvania Municipal Securities 6 Investment Risks 6 Non-Diversification 6 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Cash Series Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 10 - ------------------------------------------------------ Special Purchase Features 10 HOW TO REDEEM SHARES 11 - ------------------------------------------------------ Special Redemption Features 12 ACCOUNT AND SHARE INFORMATION 12 - ------------------------------------------------------ TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 State and Local Taxes 14 OTHER CLASSES OF SHARES 14 - ------------------------------------------------------ PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SHARES 16 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SERVICE SHARES 17 - ------------------------------------------------------ FINANCIAL STATEMENTS 18 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 35 - ------------------------------------------------------ ADDRESSES 36 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- CASH SERIES SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................................. None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)................................................. None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................... None Redemption Fee (as a percentage of amount redeemed, if applicable).................... None Exchange Fee.......................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)..................................................... 0.28% 12b-1 Fee (after waiver) (2).......................................................... 0.35% Total Other Expenses.................................................................. 0.42% Shareholder Services Fee..................................................... 0.25% Total Operating Expenses (3)..................................................... 1.05%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The maximum 12b-1 fee is 0.40%. (3) The total operating expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1996. The total operating expenses were 1.05% for the fiscal year ended October 31, 1995 and would have been 1.33% absent the voluntary waivers of portions of the management fee and the 12b-1 fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Cash Series Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ----------------------------------------------------------------------------------------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period........... $ 11 $ 33 $ 58 $ 128
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--CASH SERIES SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 35.
YEAR ENDED OCTOBER 31, --------------------------------------------------- 1995 1994 1993 1992 1991(A) ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------------- Net investment income 0.03 0.02 0.02 0.03 0.03 - -------------------------------------------- LESS DISTRIBUTIONS - -------------------------------------------- Distributions from net investment income (0.03) (0.02) (0.02) (0.03) (0.03) - -------------------------------------------- ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------------- ------ ------ ------ ------ ------ TOTAL RETURN (B) 3.02% 1.84% 1.83% 2.67% 3.55% - -------------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------------- Expenses 1.05% 1.04% 0.97% 0.96% 0.78%* - -------------------------------------------- Net investment income 2.98% 1.73% 1.88% 2.64% 3.92%* - -------------------------------------------- Expense waiver/reimbursement (c) 0.28% 0.18% 0.12% 0.12% 0.28%* - -------------------------------------------- SUPPLEMENTAL DATA - -------------------------------------------- Net assets, end of period (000 omitted) $28,255 $18,352 $18,561 $24,694 $19,846 - --------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from January 25, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Trustees have established three classes of shares known as Cash Series Shares, Institutional Shares and Institutional Service Shares. This prospectus relates only to Cash Series Shares of the Fund, which are designed primarily for the retail customers of financial institutions as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term Pennsylvania municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Pennsylvania taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Pennsylvania municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Pennsylvania dividend and interest income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Pennsylvania and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Pennsylvania state income tax imposed upon non-corporate taxpayers ("Pennsylvania Municipal Securities"). Examples of Pennsylvania Municipal Securities include, but are not limited to: - tax and revenue anticipation notes ("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 debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Pennsylvania Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Pennsylvania Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price), all having the same quality characteristics as described above. Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Pennsylvania Municipal Securities is subject to the federal alternative minimum tax. PENNSYLVANIA MUNICIPAL SECURITIES Pennsylvania Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Pennsylvania Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Pennsylvania Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Pennsylvania Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Pennsylvania Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Pennsylvania Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Pennsylvania Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Pennsylvania Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Pennsylvania Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. The Fund will invest in securities for income earnings rather than trading for profit. The Fund will not vary its investments, except subject to certain conditions. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF CASH SERIES SHARES Federated Securities Corp. is the principal distributor for Cash Series Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"), the distributor may be paid a fee in an amount computed at an annual rate of .50 of 1% of the average daily net assets of Cash Series Shares to finance any activity which is principally intended to result in the sale of Cash Series 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 services or distribution-related 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 Cash Series Shares under the Distribution Plan. In addition, the Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of Cash Series Shares to obtain certain personal services for shareholders and the maintenance of shareholder accounts. Under the Shareholder Services Agreement, Federated Shareholders Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon Cash Series Shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Distribution Plan and Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance will be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS - --------------------- ---------------------------------- .15 of 1% on the first $250 million .125 of 1% on the next $250 million .10 of 1% on the next $250 million on assets in excess of $750 .075 of 1% 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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of Cash Series Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next is determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Pennsylvania Municipal Cash Trust, Cash Series Shares; Fund Number (this number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to Pennsylvania Municipal Cash Trust--Cash Series Shares. Please include an account number on the check. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the checkwriting program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio, only shares of that portfolio are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 4, 1995, BHC Securities Inc., Philadelphia, PA, owned 35.87% of the voting securities of the Fund's Cash Series Shares and BB Securities Co., Blue Ball, PA, owned 33.30% of the voting securities of the Fund's Institutional Shares, and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Fund shares may be subject to personal property taxes imposed by counties, municipalities, and school districts in Pennsylvania to the extent that the portfolio securities in the Fund would be subject to such taxes if owned directly by residents of those jurisdictions. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. PENNSYLVANIA TAXES. The Fund received a ruling from the Commonwealth of Pennsylvania Department of Revenue that interest or gain derived by the Fund from obligations free from state taxation in Pennsylvania is not taxable on pass-through to Fund shareholders for purposes of Pennsylvania personal income taxes. This was based on the existence of the Pennsylvania Investment Restrictions (see "Investment Limitations"). However, legislation enacted in December 1993, eliminates the necessity of the Pennsylvania Investment Restrictions. This legislation also generally repeals the Pennsylvania personal income tax exemption for gains from the sale of tax-exempt obligations, including the exemption for distributions from the Fund to the extent that they are derived from gains from tax-exempt obligations. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers other classes. Institutional Shares are sold at net asset value primarily to financial institutions acting in a fiduciary or agency capacity and are subject to a minimum initial investment of $25,000 over a 90-day period. Institutional Service Shares are sold at net asset value primarily to financial institutions acting in an agency capacity and are subject to a minimum initial investment of $25,000 over a 90-day period. All classes are subject to certain of the same expenses. Institutional Shares are distributed with no 12b-1 fees but are subject to shareholder services fees. Institutional Service Shares are distributed with no 12b-1 fees but are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-235-4669. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield for shares. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 35.
YEAR ENDED OCTOBER 31, 1995(A) ------------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 - ------------------------------------------------------------------------------ Net investment income 0.01 - ------------------------------------------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------------------------------------------ Distributions from net investment income (0.01) - ------------------------------------------------------------------------------ --------- NET ASSET VALUE, END OF PERIOD $1.00 - ------------------------------------------------------------------------------ --------- TOTAL RETURN (B) 1.03% - ------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------------ Expenses 0.45%* - ------------------------------------------------------------------------------ Net investment income 3.81%* - ------------------------------------------------------------------------------ Expense waiver/reimbursement (c) 0.46%* - ------------------------------------------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------------------------------------------ Net assets, end of period (000 omitted) $2,529 - ------------------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from August 23, 1995 (date of initial public investment) to October 31, 1995. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 35.
YEAR ENDED OCTOBER 31, -------------------------------------------------------------- 1995 1994 1993 1992 1991 1990(A) ------ ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------- Net investment income 0.03 0.02 0.02 0.03 0.05 0.05 - ----------------------------------- LESS DISTRIBUTIONS - ----------------------------------- Distributions from net investment income (0.03) (0.02) (0.02) (0.03) (0.05) (0.05 ) - ----------------------------------- ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------- ------ ------ ------ ------ ------ ------ TOTAL RETURN (B) 3.44% 2.25% 2.24% 3.08% 4.64% 5.78 % - ----------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------- Expenses 0.65% 0.64% 0.57% 0.56% 0.55% 0.50 %* - ----------------------------------- Net investment income 3.38% 2.19% 2.21% 3.04% 4.53% 5.56 %* - ----------------------------------- Expense waiver/reimbursement (c) 0.27% 0.02% 0.12% 0.12% 0.11% 0.18 %* - ----------------------------------- SUPPLEMENTAL DATA - ----------------------------------- Net assets, end of period (000 omitted) $276,407 $229,160 $318,518 $308,200 $317,165 $275,882 - -----------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from November 21, 1989 (date of initial public investment) to October 31, 1990. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--99.4% - ------------------------------------------------------------------------ PENNSYLVANIA--99.2% ------------------------------------------------------ $ 2,350,000 Allegheny County, PA HDA, (Series 1988A) Weekly VRDNs (Allegheny Hospital)/(PNC Bank, N.A. LOC) VMIG1 $ 2,350,000 ------------------------------------------------------ 1,000,000 Allegheny County, PA IDA, (Series 1991) Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) P-1 1,000,000 ------------------------------------------------------ 1,500,000 Allegheny County, PA, IDA, (Series 1991B) Weekly VRDNs (Shandon, Inc.)/(PNC Bank, N.A. LOC) P-1 1,500,000 ------------------------------------------------------ 6,500,000 Allegheny County, PA IDA, 4.75% CP (Duquesne Light Power Co.)/(Barclays Bank PLC, London LOC), Mandatory Tender 12/7/1995 A-1+ 6,500,000 ------------------------------------------------------ 4,975,000 Allegheny County, PA IDA, Adjustable Rate Commercial Development Revenue Bonds (Series 1992) Weekly VRDNs (Eleven Parkway Center Associates)/(Integra Bank, Pittsburgh LOC) A-1 4,975,000 ------------------------------------------------------ 5,000,000 Allegheny County, PA IDA, PCR (Series 1992A), 3.75% TOBs (Duquesne Light Power Co.)/(Canadian Imperial Bank of Commerce, Toronto LOC), Optional Tender 11/30/1995 P-1 5,000,000 ------------------------------------------------------ 3,000,000 Beaver County, PA IDA, PCR Refunding Bonds (1992 Series-E), 3.85% CP (Toledo Edison Co.)/(Toronto- Dominion Bank LOC), Mandatory Tender 3/6/1996 A1 3,000,000 ------------------------------------------------------ 1,260,000 Berks County, PA IDA Weekly VRDNs (ADC Quaker Maid Meats)/(Meridian Bank, Reading, PA LOC) VMIG1 1,260,000 ------------------------------------------------------ 1,580,000 Berks County, PA IDA Weekly VRDNs (Beacon Container)/ (Corestates Bank N.A., Philadelphia, PA LOC) P-1 1,580,000 ------------------------------------------------------ 2,000,000 Berks County, PA IDA, (Series 1988) Weekly VRDNs (Arrow Electronics, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) P-1 2,000,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE ---------- ---- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 2,000,000 Berks County, PA IDA, Variable Rate Demand/Fixed Rate Mfg Facilities Revenue Bonds (Series 1995) Weekly VRDNs (Grafika Commercial Printing, Inc.)/(Meridian Bank, Reading, PA LOC) P-1 $ 2,000,000 ------------------------------------------------------ 2,000,000 Berks County, PA, (Series 1995), 5.20% TRANs, 12/31/1995 NR(3) 2,000,000 ------------------------------------------------------ 2,445,000 Bucks County, PA IDA Weekly VRDNs (Double H Plastics, Inc.)/(Meridian Bank, Reading, PA LOC) VMIG1 2,445,000 ------------------------------------------------------ 2,960,000 Bucks County, PA IDA Weekly VRDNs (Pennsylvania Associates)/(Meridian Bank, Reading, PA LOC) P-1 2,960,000 ------------------------------------------------------ 5,090,000 Bucks County, PA IDA, (Series 1991) Weekly VRDNs (Cabot Medical Corp.)/(Meridian Bank, Reading, PA LOC) VMIG1 5,090,000 ------------------------------------------------------ 4,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) P-1 4,000,000 ------------------------------------------------------ 1,000,000 Butler County, PA IDA, (Series 1992B) Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) P-1 1,000,000 ------------------------------------------------------ 2,435,000 Butler County, PA IDA, Variable Rate IDRB (Series 1994) Weekly VRDNs (Lue-Rich Holding Company, Inc. Project)/(ABN AMRO Bank N.V., Amsterdam LOC) A-1+ 2,435,000 ------------------------------------------------------ 700,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/(Fuji Bank, Ltd., Tokyo LOC) A-1 700,000 ------------------------------------------------------ 1,900,000 Carbon County, PA IDA Weekly VRDNs (Summit Management & Utilities, Inc.)/(PNC Bank, N.A. LOC) A-1 1,900,000 ------------------------------------------------------ 5,000,000 Carbon County, PA IDA, 3.90% CP (Panther Creek)/ (National Westminster Bank, PLC, London LOC), Mandatory Tender 1/18/1996 A-1+ 5,000,000 ------------------------------------------------------ 2,620,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.80% CP (Panther Creek)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 11/17/1995 A-1+ 2,620,000 ------------------------------------------------------ 6,825,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.85% CP (Panther Creek)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/25/1996 A-1+ 6,825,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE ---------- ---- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 1,545,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.90% CP (Panther Creek)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/16/1996 A-1+ $ 1,545,000 ------------------------------------------------------ 5,000,000 Carbon County, PA IDA, Solid Waste Disposal Revenue Notes (Series 1995A), 4.00% RANs (Horsehead Resource Development, Inc.)/(Chemical Bank, New York LOC), 12/1/1995 P-1 5,000,000 ------------------------------------------------------ 7,300,000 Clearfield County, PA IDA Weekly VRDNs (Penn Traffic Co.)/(ABN AMRO Bank N.V., Amsterdam LOC) P-1 7,300,000 ------------------------------------------------------ 3,305,000 Clinton County, PA Municipal Authority, (Series A) Weekly VRDNs (Lock Haven Hospital)/(Mellon Bank NA, Pittsburgh LOC) P-1 3,305,000 ------------------------------------------------------ 3,000,000 Clinton County, PA, IDA Weekly VRDNs (Armstrong World Industries, Inc.)/(Mellon Bank NA, Pittsburgh LOC) P-1 3,000,000 ------------------------------------------------------ 17,000,000 Commonwealth of Pennsylvania, (First Series of 1995-1996), 4.50% TANs, 6/28/1996 SP-1+ 17,079,453 ------------------------------------------------------ 1,600,000 Cumberland County, PA IDA, Variable Rate Demand/ Fixed Industrial Development Bonds (Series 1994) Weekly VRDNs (Lane Enterprises, Inc. Project)/(Meridian Bank, Reading, PA LOC) P-1 1,600,000 ------------------------------------------------------ 3,900,000 East Hempfield Township, PA IDA, (Series 1985) Weekly VRDNs (Yellow Freight System)/(Wachovia Bank of NC, NA, Winston-Salem LOC) A-1 3,900,000 ------------------------------------------------------ 7,300,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Vincent Health System)/(Fuji Bank, Ltd., Tokyo LOC) A-1 7,300,000 ------------------------------------------------------ 500,000 Erie County, PA IDA Weekly VRDNs (P.H.B. Project)/ (PNC Bank, N.A. LOC) P-1 500,000 ------------------------------------------------------ 425,000 Erie County, PA IDA, (Series 1985) Weekly VRDNs (R. P-C Value, Inc.)/(PNC Bank, N.A. LOC) P-1 425,000 ------------------------------------------------------ 600,000 Erie County, PA IDA, (Series B) Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) P-1 600,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 1,665,000 Erie County, PA IDA, Multi Mode Revenue Refunding Bonds Weekly VRDNs (Corry Manor, Inc.)/(PNC Bank, N.A. LOC) A-1 $ 1,665,000 ------------------------------------------------------ 500,000 Forest County, PA IDA Weekly VRDNs (Industrial Timber & Land Co.)/(National City Bank, Cleveland, OH LOC) P-1 500,000 ------------------------------------------------------ 1,280,000 Forest County, PA IDA Weekly VRDNs (Marienville Health Care Facility)/(PNC Bank, N.A. LOC) P-1 1,280,000 ------------------------------------------------------ 1,800,000 Franklin County, PA IDA Weekly VRDNs (The Guarriello Limited Partnership)/(PNC Bank, N.A. LOC) P-1 1,800,000 ------------------------------------------------------ 2,800,000 Lackawanna County, PA IDA, (Series 1992) Weekly VRDNs (Hem Project)/(Corestates Bank N.A., Philadelphia, PA LOC) P-1 2,800,000 ------------------------------------------------------ 2,350,000 Lancaster, PA Higher Education Authority, College Revenue Bonds (Series 1995) Weekly VRDNs (Franklin and Marshall College Project) VMIG1 2,350,000 ------------------------------------------------------ 2,356,092 Lawrence County, PA IDA, (Series 1989A) Weekly VRDNs (Ellwood Uddeholm Steel Co.)/(Society National Bank, Cleveland, OH LOC) P-1 2,356,092 ------------------------------------------------------ 3,100,000 Lehigh County, PA IDA, (Series 1989A) Weekly VRDNs (Hershey Pizza Co., Inc.)/(PNC Bank, N.A. LOC) A-1 3,100,000 ------------------------------------------------------ 1,000,000 Lehigh County, PA, General Purpose Authority Revenue Bonds (Series 1990) Weekly VRDNs (Phoebe Terrace, Inc.)/(Meridian Bank, Reading, PA LOC) P-1 1,000,000 ------------------------------------------------------ 3,300,000 Lehigh County, PA, IDA Weekly VRDNs (Cedar Crest College)/(PNC Bank, N.A. LOC) A-1 3,300,000 ------------------------------------------------------ 1,005,000 McKean County, PA IDA, Multi-Mode Revenue Refunding Bonds Weekly VRDNs (Bradford Manor, Inc.)/(PNC Bank, N.A. LOC) A-1 1,005,000 ------------------------------------------------------ 3,300,000 Monroe County, PA IDA, PCR Weekly VRDNs (Cooper Industries, Inc.)/(Sanwa Bank Ltd, Osaka LOC) A-1 3,300,000 ------------------------------------------------------ 2,600,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (General Signal Corp.)/(Morgan Guaranty Trust Co., New York LOC) P-1 2,600,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 3,500,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (Seton Co.)/(Banque Paribas, Paris LOC) A-1 $ 3,500,000 ------------------------------------------------------ 1,300,000 Montgomery County, PA IDA, (Series 1992) Weekly VRDNs (RJI Limited Partnership)/(Meridian Bank, Reading, PA LOC) VMIG1 1,300,000 ------------------------------------------------------ 2,800,000 Montgomery County, PA IDA, (Series 84) Weekly VRDNs (Thomas & Betts Corp.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) P-1 2,800,000 ------------------------------------------------------ 6,980,000 Montgomery County, PA IDA, Commercial Development Revenue Bonds (Series 1992) Weekly VRDNs (Hickory Pointe Project)/(First Fidelity Bank, NA, New Jersey LOC) P-1 6,980,000 ------------------------------------------------------ 5,075,000 Moon Township, PA IDA Weekly VRDNs (Airport Hotel Associates)/(ABN AMRO Bank N.V., Amsterdam LOC) A-1+ 5,075,000 ------------------------------------------------------ 5,000,000 North Lebanon Township, PA, Municipal Authority Mortgage Weekly VRDNs (Grace Community, Inc.)/ (Meridian Bank, Reading, PA LOC) VMIG1 5,000,000 ------------------------------------------------------ 9,000,000 Northampton County, PA IDA, 3.85% CP (Citizens Utilities Co.), Mandatory Tender 11/9/1995 A-1+ 9,000,000 ------------------------------------------------------ 2,000,000 Northampton County, PA IDA, 3.90% CP (Citizens Utilities Co.), Mandatory Tender 12/14/1995 A-1+ 2,000,000 ------------------------------------------------------ 1,590,000 Northumberland County PA IDA, Variable Rate Demand/ Fixed Rate Revenue Bonds (Series A of 1995) Weekly VRDNs (Furman Farms, Inc. Project)/(Meridian Bank, Reading, PA LOC) P-1 1,590,000 ------------------------------------------------------ 1,875,000 Pennsylvania Education Development Authority Weekly VRDNs (Cyrogenics, Inc.)/(PNC Bank, N.A. LOC) A-1 1,875,000 ------------------------------------------------------ 3,300,000 Pennsylvania Education Development Authority Weekly VRDNs (Industrial Scientific Corp.)/(Mellon Bank NA, Pittsburgh LOC) P-1 3,300,000 ------------------------------------------------------ 750,000 Pennsylvania Education Development Authority Weekly VRDNs (Pioneer Fluid)/(PNC Bank, N.A. LOC) A-1 750,000 ------------------------------------------------------ 675,000 Pennsylvania Education Development Authority Weekly VRDNs (RMF Associates)/(PNC Bank, N.A. LOC) P-1 675,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 900,000 Pennsylvania Education Development Authority Weekly VRDNs (Reace Associates)/(PNC Bank, N.A. LOC) A-1 $ 900,000 ------------------------------------------------------ 4,400,000 Pennsylvania Education Development Authority Weekly VRDNs (Walnut And Craig)/(PNC Bank, N.A. LOC) P-1 4,400,000 ------------------------------------------------------ 500,000 Pennsylvania Education Development Authority, (Series B) Weekly VRDNs (Payne Printing Co.)/ (PNC Bank, N.A. LOC) A-1 500,000 ------------------------------------------------------ 1,300,000 Pennsylvania Education Development Authority, Revenue Bonds (Series G4) Weekly VRDNs (Metamora Products)/ (PNC Bank, N.A. LOC) A-1 1,300,000 ------------------------------------------------------ 325,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (DDI Pharmaceuticals, Inc.)/ (PNC Bank, N.A. LOC) A-1 325,000 ------------------------------------------------------ 625,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (RAM Forest Products)/ (PNC Bank, N.A. LOC) A-1 625,000 ------------------------------------------------------ 6,915,000 Pennsylvania Housing Finance Authority, 3.90% TOBs (First National Bank of Chicago LIQ), Optional Tender 4/1/1996 NR(2) 6,915,000 ------------------------------------------------------ 980,000 Pennsylvania Housing Finance Authority, Section 8 Assisted Residential Development Refunding Bonds (Series 1992A) Weekly VRDNs (CGIC INS)/(Citibank NA, New York LIQ) NR(1) 980,000 ------------------------------------------------------ 2,420,000 Pennsylvania Housing Finance Authority, Tender Option Bonds/Single Family Housing (Series O), 4.875% TOBs (Meridian Bank, Reading, PA LIQ), Optional Tender 4/1/1996 NR(2) 2,420,000 ------------------------------------------------------ 3,190,000 Pennsylvania State Higher Education Assistance Agency, 4.50% TOBs (Carnegie-Mellon University), Optional Tender 5/1/1996 A-1 3,190,000 ------------------------------------------------------ 9,405,000 Pennsylvania State Higher Education Facilities Authority, 4.20% TOBs (Carnegie-Mellon University), Optional Tender 11/1/1995 A-1 9,405,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 1,945,000 Pennsylvania State Higher Education Facilities Authority, College & University Revenues/Drexel University, 7.70% Bonds (United States Treasury PRF), 11/1/1995 (@102) Aaa $ 1,983,900 ------------------------------------------------------ 3,100,000 Pennsylvania State University, Series 1995 Notes, 5.25% BANs, 4/5/1996 MIG1 3,110,758 ------------------------------------------------------ 9,000,000 Philadelphia Redevelopment Authority, Multi-Family Revenue Bonds (Series 1985) Weekly VRDNs (Franklin Town Towers)/(Marine Midland Bank N.A., Buffalo, NY LOC) P-2 9,000,000 ------------------------------------------------------ 7,440,000 Philadelphia, PA IDA, (Series 93) Weekly VRDNs (Sackett Development)/(Mellon Bank NA, Pittsburgh LOC) A1 7,440,000 ------------------------------------------------------ 7,000,000 Philadelphia, PA IDA, 4.25% TOBs (Suite Hotel)/(First National Bank of Boston, MA LOC), Optional Tender 6/1/1996 P-1 7,000,000 ------------------------------------------------------ 3,700,000 Philadelphia, PA IDA, Commercial Development Revenue Bonds (Series A), 4.00% TOBs (Economy Inn)/ (First National Bank of Boston, MA LOC), Optional Tender 7/1/1996 P-1 3,700,000 ------------------------------------------------------ 1,700,000 Philadelphia, PA IDA, Commercial Development Revenue Bonds (Series B), 4.00% TOBs (Economy Inn)/(First National Bank of Boston, MA LOC), Optional Tender 7/1/1996 A-2 1,700,000 ------------------------------------------------------ 5,500,000 Philadelphia, PA, (Series A), 4.50% TRANs, 6/27/1996 SP-1 5,517,306 ------------------------------------------------------ 4,000,000 Philadelphia, PA, GO (Series 1990), 3.85% CP (Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender 11/16/1995 VMIG1 4,000,000 ------------------------------------------------------ 4,010,000 Philadelphia, PA, GO (Series 1990), 4.00% CP (Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender 11/6/1995 Aa3 4,010,000 ------------------------------------------------------ 5,000,000 Port Authority of Allegheny County, PA, (Series 1995A), 3.875% GANs (PNC Bank, N.A. LOC), 6/28/1996 NR(3) 5,000,000 ------------------------------------------------------ 2,320,000 Sayre, PA, Health Care Facilities Authority Weekly VRDNs (VHA of Pennsylvania)/(AMBAC INS)/(First National Bank of Chicago LIQ) A-1 2,320,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 4,000,000 Temple University, Commonwealth System of Higher Education University Funding Obligations (Series 1995), 5.00% BANs, 5/22/1996 SP-1+ $ 4,014,883 ------------------------------------------------------ 3,824,000 Upper Darby School District, PA, 4.13% TRANs, 6/28/1996 NR(3) 3,825,432 ------------------------------------------------------ 1,550,000 Venango, PA IDA, (Series A), 3.95% CP (Scrubgrass Power Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/10/1996 A-1+ 1,550,000 ------------------------------------------------------ 4,000,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.80% CP (Scrubgrass Power Corp.)/ (National Westminster Bank, PLC, London LOC), Mandatory Tender 11/13/1995 A-1+ 4,000,000 ------------------------------------------------------ 2,100,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.95% CP (Scrubgrass Power Corp.)/ (National Westminster Bank, PLC, London LOC), Mandatory Tender 1/26/1996 A-1+ 2,100,000 ------------------------------------------------------ 870,000 Washington County, PA Hospital Authority, (Series 1990) Weekly VRDNs (Mac Plastics, Inc.)/(National City Bank, Cleveland, OH LOC) AA 870,000 ------------------------------------------------------ 5,700,000 Washington County, PA Municipal Authority Facilities, (Series 1985A) Weekly VRDNs (1985-A Pooled Equipment Lease Program)/(Sanwa Bank Ltd, Osaka LOC) VMIG1 5,700,000 ------------------------------------------------------ 1,350,000 Washington County, PA, IDA (Series 1988) Weekly VRDNs (Coca-Cola Co.)/(Mellon Bank NA, Pittsburgh LOC) P-1 1,350,000 ------------------------------------------------------ 1,100,000 West Cornwall Township, PA Municipal Authority, Revenue Bonds (Series 1995) Weekly VRDNs (Lebanon Valley Brethern Home Project (PA))/(Meridian Bank, Reading, PA LOC) P-1 1,100,000 ------------------------------------------------------ 1,418,000 West York Area School District, PA, Tax & Revenue Anticipation Notes (Series 1995), 4.26% TRANs, 6/28/1996 NR(3) 1,418,711 ------------------------------------------------------ 2,588,850 Woodland Hills School District, PA, 4.21% TRANs, 6/28/1996 NR 2,589,819 ------------------------------------------------------ ------------ Total 304,856,354 ------------------------------------------------------ ------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PUERTO RICO--0.2% ------------------------------------------------------ $ 600,000 Puerto Rico Government Development Bank Weekly VRDNs (Credit Suisse, Zurich LOC) A-1+ $ 600,000 ------------------------------------------------------ ------------ TOTAL INVESTMENTS, AT AMORTIZED COST(A) $305,456,354 ------------------------------------------------------ ------------
Securities that are subject to the Alternative Minimum Tax represent 56.5% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($307,191,765) at October 31, 1995. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronym(s) are used throughout this portfolio: AMBAC -- American Municipal Bond Assurance Corporation BANs -- Bond Anticipation Notes CGIC -- Capital Guaranty Insurance Corporation CP -- Commercial Paper GANs -- Grant Anticipation Notes GO -- General Obligation HDA -- Hospital Development Authority IDA -- Industrial Development Authority IDRB -- Industrial Development Revenue Bond INS -- Insured LIQ -- Liquidity Agreement LOC -- Letter of Credit PCR -- Pollution Control Revenue PLC -- Public Limited Company PRF -- Prerefunded RANs -- Revenue Anticipation Notes TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds TRANs -- Tax and Revenue Anticipation Notes VHA -- Veterans Housing Administration VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Investments in securities, at amortized cost and value $305,456,354 - ------------------------------------------------------------------------------- Cash 302,320 - ------------------------------------------------------------------------------- Income receivable 2,170,862 - ------------------------------------------------------------------------------- Receivable for shares sold 2,272 - ------------------------------------------------------------------------------- ------------ Total assets 307,931,808 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for shares redeemed 1,505 - -------------------------------------------------------------------- Income distribution payable 634,420 - -------------------------------------------------------------------- Accrued expenses 104,118 - -------------------------------------------------------------------- -------- Total liabilities 740,043 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 307,191,765 shares outstanding $307,191,765 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------- $276,407,484 / 276,407,484 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------ CASH SERIES SHARES: - ------------------------------------------------------------------------------- $28,255,264 / 28,255,264 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------ INSTITUTIONAL SHARES: - ------------------------------------------------------------------------------- $2,529,017 / 2,529,017 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------------- Interest $11,660,838 - --------------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------------- Investment advisory fee $1,445,400 - ----------------------------------------------------------------------- Administrative personnel and services fee 218,834 - ----------------------------------------------------------------------- Custodian fees 54,452 - ----------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 51,317 - ----------------------------------------------------------------------- Directors'/Trustees' fees 1,626 - ----------------------------------------------------------------------- Auditing fees 14,983 - ----------------------------------------------------------------------- Legal fees 3,910 - ----------------------------------------------------------------------- Portfolio accounting fees 67,074 - ----------------------------------------------------------------------- Distribution services fee--Cash Series Shares 96,501 - ----------------------------------------------------------------------- Shareholder services fee--Institutional Service Shares 661,792 - ----------------------------------------------------------------------- Shareholder services fee--Cash Series Shares 60,313 - ----------------------------------------------------------------------- Shareholder services fee--Institutional Shares 596 - ----------------------------------------------------------------------- Share registration costs 42,662 - ----------------------------------------------------------------------- Printing and postage 15,292 - ----------------------------------------------------------------------- Insurance premiums 6,469 - ----------------------------------------------------------------------- Miscellaneous 5,970 - ----------------------------------------------------------------------- ---------- Total expenses 2,747,191 - ----------------------------------------------------------------------- Waivers-- - ----------------------------------------------------------------------- Waiver of investment advisory fee $(222,841) - ----------------------------------------------------------- Waiver of distribution services fee--Cash Series Shares (44,624) - ----------------------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (496,060) - ----------------------------------------------------------- Waiver of shareholder services fee--Cash Series Shares (1,766) - ----------------------------------------------------------- Waiver of shareholder services fee--Institutional Shares (596) - ----------------------------------------------------------- --------- Total waivers (765,887) - ----------------------------------------------------------------------- ---------- Net expenses 1,981,304 - --------------------------------------------------------------------------------------- ----------- Net investment income $ 9,679,534 - --------------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ------------------------------- 1995 1994 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------------- OPERATIONS-- - ------------------------------------------------------------- Net investment income $ 9,679,534 $ 6,997,846 - ------------------------------------------------------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ------------------------------------------------------------- Distributions from net investment income - ------------------------------------------------------------- Institutional Service Shares (8,951,830) (6,625,711) - ------------------------------------------------------------- Cash Series Shares (718,640) (372,135) - ------------------------------------------------------------- Institutional Shares (9,064) 0 - ------------------------------------------------------------- ------------- ------------- Change in net assets resulting from distributions to shareholders (9,679,534) (6,997,846) - ------------------------------------------------------------- ------------- ------------- SHARE TRANSACTIONS-- - ------------------------------------------------------------- Proceeds from sale of shares 1,028,950,579 800,515,592 - ------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,339,163 1,321,124 - ------------------------------------------------------------- Cost of shares redeemed (971,610,388) (891,403,705) - ------------------------------------------------------------- ------------- ------------- Change in net assets resulting from share transactions 59,679,354 (89,566,989) - ------------------------------------------------------------- ------------- ------------- Change in net assets 59,679,354 (89,566,989) - ------------------------------------------------------------- NET ASSETS: - ------------------------------------------------------------- Beginning of period 247,512,411 337,079,400 - ------------------------------------------------------------- ------------- ------------- End of period $ 307,191,765 $ 247,512,411 - ------------------------------------------------------------- ------------- -------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Pennsylvania Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers three classes of shares: Institutional Service Shares, Cash Series Shares and Institutional Shares. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 75.5% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- supported (backed) by a letter of credit for any one institution or agency does not exceed 11.7% of total investments. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1995, capital paid-in aggregated $307,191,765. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, ----------------------------- INSTITUTIONAL SERVICE SHARES 1995 1994 - --------------------------------------------------------------- ------------ ------------ Shares sold 940,400,092 749,671,233 - --------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,631,397 937,173 - --------------------------------------------------------------- Shares redeemed (894,784,261) (839,966,777) - --------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional Service share transactions 47,247,228 (89,358,371) - --------------------------------------------------------------- ------------ ------------
YEAR ENDED OCTOBER 31, ----------------------------- CASH SERIES SHARES 1995 1994 - --------------------------------------------------------------- ------------ ------------ Shares sold 85,377,025 50,844,359 - --------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 705,513 383,951 - --------------------------------------------------------------- Shares redeemed (76,179,429) (51,436,928) - --------------------------------------------------------------- ------------ ------------ Net change resulting from Cash Series share transactions 9,903,109 (208,618) - --------------------------------------------------------------- ------------ ------------
YEAR ENDED OCTOBER 31, ----------------------------- INSTITUTIONAL SHARES 1995(A) 1994 - --------------------------------------------------------------- ------------ ------------ Shares sold 3,173,462 0 - --------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 2,253 0 - --------------------------------------------------------------- Shares redeemed (646,698) 0 - --------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional share transactions 2,529,017 0 - --------------------------------------------------------------- ------------ ------------ Net change resulting from share transactions 59,679,354 (89,566,989) - --------------------------------------------------------------- ------------ ------------
(a) For the period from August 23, 1995 (date of initial public investment) to October 31, 1995. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Cash Series shares. The Plan provides that the Fund may incur distribution expenses up to .40 of 1% of the average daily net assets of the Cash Series Shares, annually to compensate FSC. The distributor may voluntarily choose to waive any portion of its fee. The distributor can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS,") the Fund will pay FSS up to .25 of 1% of average daily net assets of the Fund for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. For the fiscal year ended October 31, 1995, the Institutional Shares fully waived its shareholder services fee. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ also maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- INTERFUND TRANSACTIONS--During the period ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common Officers. These transactions were made at current market value pursuant to Rule 17a-7 under the Act amounting to $488,240,000 and $437,690,000 respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors of the above companies. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Pennsylvania Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Pennsylvania Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights (see pages 2, 16 and 17 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Pennsylvania Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended and the changes in its net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 ADDRESSES - -------------------------------------------------------------------------------- Pennsylvania Municipal Cash Trust Cash Series Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 - ------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - ------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PENNSYLVANIA MUNICIPAL CASH TRUST CASH SERIES SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 CUSIP 314229881 9101005A-CSS (12/95) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PENNSYLVANIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS The Institutional Service Shares of Pennsylvania Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Pennsylvania municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Pennsylvania, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Pennsylvania Municipal Securities 6 Investment Risks 6 Non-Diversification 6 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Institutional Service Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ Special Purchase Features 10 HOW TO REDEEM SHARES 10 - ------------------------------------------------------ Special Redemption Features 12 ACCOUNT AND SHARE INFORMATION 12 - ------------------------------------------------------ TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 State and Local Taxes 13 OTHER CLASSES OF SHARES 14 - ------------------------------------------------------ PERFORMANCE INFORMATION 15 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--CASH SERIES SHARES 16 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 17 - ------------------------------------------------------ FINANCIAL STATEMENTS 18 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 35 - ------------------------------------------------------ ADDRESSES 36 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................................. None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)................................................. None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................... None Redemption Fee (as a percentage of amount redeemed, if applicable).................... None Exchange Fee.......................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)...................................................... 0.28% 12b-1 Fee............................................................................. None Total Other Expenses.................................................................. 0.37% Shareholder Services Fee (after waiver)(2)................................... 0.20% Total Operating Expenses(3)...................................................... 0.65%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The maximum shareholder services fee is 0.25%. (3) The total operating expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1996. The total operating expenses were 0.65% for the fiscal year ended October 31, 1995 and would have been 0.92% absent the voluntary waivers of a portion of the management fee and the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Service Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire- transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ----------------------------------------------------------------------------------------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period........... $ 7 $ 21 $ 36 $ 81
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 35.
YEAR ENDED OCTOBER 31, -------------------------------------------------------------- 1995 1994 1993 1992 1991 1990(A) ------ ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------- Net investment income 0.03 0.02 0.02 0.03 0.05 0.05 - ----------------------------------- LESS DISTRIBUTIONS - ----------------------------------- Distributions from net investment income (0.03) (0.02) (0.02) (0.03) (0.05) (0.05 ) - ----------------------------------- ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------- ------ ------ ------ ------ ------ ------ TOTAL RETURN (B) 3.44% 2.25% 2.24% 3.08% 4.64% 5.78 % - ----------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------- Expenses 0.65% 0.64% 0.57% 0.56% 0.55% 0.50 %* - ----------------------------------- Net investment income 3.38% 2.19% 2.21% 3.04% 4.53% 5.56 %* - ----------------------------------- Expense waiver/reimbursement (c) 0.27% 0.02% 0.12% 0.12% 0.11% 0.18 %* - ----------------------------------- SUPPLEMENTAL DATA - ----------------------------------- Net assets, end of period (000 omitted) $276,407 $229,160 $318,518 $308,200 $317,165 $275,882 - -----------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from November 21, 1989 (date of initial public investment) to October 31, 1990. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Trustees have established three classes of shares known as Institutional Service Shares, Institutional Shares, and Cash Series Shares. This prospectus relates only to Institutional Service Shares of the Fund, which are designed primarily for financial institutions acting in an agency capacity as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term Pennsylvania municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Pennsylvania taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Pennsylvania municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Pennsylvania and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania imposed upon non-corporate taxpayers ("Pennsylvania Municipal Securities"). Examples of Pennsylvania Municipal Securities include, but are not limited to: - tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; - bond anticipation notes ("BANs") that are intended to be refinanced through a later issuance of longer-term bonds; - municipal commercial paper and other short-term notes; - variable rate demand notes; - municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and - participation, trust and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Pennsylvania Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Pennsylvania Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Leases obligations maybe subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price), all having the same quality characteristics as described above. Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Pennsylvania Municipal Securities is subject to the federal alternative minimum tax. PENNSYLVANIA MUNICIPAL SECURITIES Pennsylvania Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Pennsylvania Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Pennsylvania Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Pennsylvania Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Pennsylvania Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Pennsylvania Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Pennsylvania Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Pennsylvania Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Pennsylvania Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. The Fund will invest in securities for income earnings rather than trading for profit. The Fund will not vary its investments, except subject to certain conditions. The above investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES Federated Securities Corp. is the principal distributor for Institutional Service Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of the Institutional Service Shares, computed at an annual rate, to provide personal services for shareholders and to provide the maintenance of shareholder accounts (shareholder services). From time to time, and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. With respect to Institutional Service Shares, in addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance will be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS - --------------------- ---------------------------------- .15 of 1% on the first $250 million .125 of 1% on the next $250 million .10 of 1% on the next $250 million on assets in excess of $750 .075 of 1% 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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of Institutional Service Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $25,000 within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o of State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Pennsylvania Municipal Cash Trust, Institutional Service Shares; Fund Number (This number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to Pennsylvania Municipal Cash Trust--Institutional Service Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instruc- tions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If shares certificates have been issued, they should be sent unendorsed with the written request by registered or certificate mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. The check writing service allows shareholders to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. As of December 4, 1995, BHC Securities Inc., Philadelphia, PA, owned 35.87% of the voting securities of the Fund's Cash Series Shares and BB Securities Co., Blue Ball, PA, owned 33.30% of the voting securities of the Fund's Institutional Shares, and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Fund shares may be subject to personal property taxes imposed by counties, municipalities, and school districts in Pennsylvania to the extent that the portfolio securities in the Fund would be subject to such taxes if owned directly by residents of those jurisdictions. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. PENNSYLVANIA TAXES. The Fund received a ruling from the Commonwealth of Pennsylvania Department of Revenue that interest or gain derived by the Fund from obligations free from state taxation in Pennsylvania is not taxable on pass-through to Fund shareholders for purposes of Pennsylvania personal income taxes. This was based on the existence of the Pennsylvania Investment Restrictions (see "Investment Limitations"). However, legislation enacted in December, 1993, eliminates the necessity of the Pennsylvania Investment Restrictions. This legislation also generally repeals the Pennsylvania personal income tax exemption for gains from the sale of tax-exempt obligations, including the exemption for distributions from the Fund to the extent that they are derived from gains from tax-exempt obligations. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers other classes of shares called Institutional Shares and Cash Series Shares. Cash Series Shares that are sold primarily to retail customers of financial institutions. Cash Series Shares are sold at net asset value and are subject to a Rule 12b-1 Plan and a Shareholder Services Agreement. Investments in Cash Series Shares are subject to a minimum initial investment of $10,000 within a 90-day period. Institutional Shares are sold primarily to financial institutions acting in a fiduciary or agency capacity. Institutional Shares are sold at net asset value and are subject to a Shareholder Services Agreement. Institutional Shares are subject to a minimum initial investment of $25,000 within a 90-day period. Institutional Service Shares, Institutional Shares, and Cash Series Shares are subject to certain of the same expenses. Expense differences, however, between Institutional Service Shares, Institutional Shares, and Cash Series Shares may affect the performance of each class. To obtain more information and a prospectus for Institutional Shares or Cash Series Shares, investors may call 1-800-235-4669. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield for shares. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the shares' tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--CASH SERIES SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 35.
YEAR ENDED OCTOBER 31, --------------------------------------------------- 1995 1994 1993 1992 1991(A) ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------------- Net investment income 0.03 0.02 0.02 0.03 0.03 - -------------------------------------------- LESS DISTRIBUTIONS - -------------------------------------------- Distributions from net investment income (0.03) (0.02) (0.02) (0.03) (0.03 ) - -------------------------------------------- ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------------- ------ ------ ------ ------ ------ TOTAL RETURN (B) 3.02% 1.84% 1.83% 2.67% 3.55% - -------------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------------- Expenses 1.05% 1.04% 0.97% 0.96% 0.78%* - -------------------------------------------- Net investment income 2.98% 1.73% 1.88% 2.64% 3.92%* - -------------------------------------------- Expense waiver/reimbursement (c) 0.28% 0.18% 0.12% 0.12% 0.28%* - -------------------------------------------- SUPPLEMENTAL DATA - -------------------------------------------- Net assets, end of period (000 omitted) $28,255 $18,352 $18,561 $24,694 $19,846 - --------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from January 25, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 35.
YEAR ENDED OCTOBER 31, 1995(A) ------------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 - ------------------------------------------------------------------------------ Net investment income 0.01 - ------------------------------------------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------------------------------------------ Distributions from net investment income (0.01) - ------------------------------------------------------------------------------ --------- NET ASSET VALUE, END OF PERIOD $1.00 - ------------------------------------------------------------------------------ --------- TOTAL RETURN (B) 1.03% - ------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------------ Expenses 0.45%* - ------------------------------------------------------------------------------ Net investment income 3.81%* - ------------------------------------------------------------------------------ Expense waiver/reimbursement (c) 0.46%* - ------------------------------------------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------------------------------------------ Net assets, end of period (000 omitted) $2,529 - ------------------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from August 23, 1995 (date of initial public investment) to October 31, 1995. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--99.4% - ------------------------------------------------------------------------ PENNSYLVANIA--99.2% ------------------------------------------------------ $ 2,350,000 Allegheny County, PA HDA, (Series 1988A) Weekly VRDNs (Allegheny Hospital)/(PNC Bank, N.A. LOC) VMIG1 $ 2,350,000 ------------------------------------------------------ 1,000,000 Allegheny County, PA IDA, (Series 1991) Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) P-1 1,000,000 ------------------------------------------------------ 1,500,000 Allegheny County, PA, IDA, (Series 1991B) Weekly VRDNs (Shandon, Inc.)/(PNC Bank, N.A. LOC) P-1 1,500,000 ------------------------------------------------------ 6,500,000 Allegheny County, PA IDA, 4.75% CP (Duquesne Light Power Co.)/(Barclays Bank PLC, London LOC), Mandatory Tender 12/7/1995 A-1+ 6,500,000 ------------------------------------------------------ 4,975,000 Allegheny County, PA IDA, Adjustable Rate Commercial Development Revenue Bonds (Series 1992) Weekly VRDNs (Eleven Parkway Center Associates)/(Integra Bank, Pittsburgh LOC) A-1 4,975,000 ------------------------------------------------------ 5,000,000 Allegheny County, PA IDA, PCR (Series 1992A), 3.75% TOBs (Duquesne Light Power Co.)/(Canadian Imperial Bank of Commerce, Toronto LOC), Optional Tender 11/30/1995 P-1 5,000,000 ------------------------------------------------------ 3,000,000 Beaver County, PA IDA, PCR Refunding Bonds (1992 Series-E), 3.85% CP (Toledo Edison Co.)/(Toronto- Dominion Bank LOC), Mandatory Tender 3/6/1996 A1 3,000,000 ------------------------------------------------------ 1,260,000 Berks County, PA IDA Weekly VRDNs (ADC Quaker Maid Meats)/(Meridian Bank, Reading, PA LOC) VMIG1 1,260,000 ------------------------------------------------------ 1,580,000 Berks County, PA IDA Weekly VRDNs (Beacon Container)/ (Corestates Bank N.A., Philadelphia, PA LOC) P-1 1,580,000 ------------------------------------------------------ 2,000,000 Berks County, PA IDA, (Series 1988) Weekly VRDNs (Arrow Electronics, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) P-1 2,000,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 2,000,000 Berks County, PA IDA, Variable Rate Demand/Fixed Rate Mfg Facilities Revenue Bonds (Series 1995) Weekly VRDNs (Grafika Commercial Printing, Inc.)/(Meridian Bank, Reading, PA LOC) P-1 $ 2,000,000 ------------------------------------------------------ 2,000,000 Berks County, PA, (Series 1995), 5.20% TRANs, 12/31/1995 NR(3) 2,000,000 ------------------------------------------------------ 2,445,000 Bucks County, PA IDA Weekly VRDNs (Double H Plastics, Inc.)/(Meridian Bank, Reading, PA LOC) VMIG1 2,445,000 ------------------------------------------------------ 2,960,000 Bucks County, PA IDA Weekly VRDNs (Pennsylvania Associates)/(Meridian Bank, Reading, PA LOC) P-1 2,960,000 ------------------------------------------------------ 5,090,000 Bucks County, PA IDA, (Series 1991) Weekly VRDNs (Cabot Medical Corp.)/(Meridian Bank, Reading, PA LOC) VMIG1 5,090,000 ------------------------------------------------------ 4,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) P-1 4,000,000 ------------------------------------------------------ 1,000,000 Butler County, PA IDA, (Series 1992B) Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) P-1 1,000,000 ------------------------------------------------------ 2,435,000 Butler County, PA IDA, Variable Rate IDRB (Series 1994) Weekly VRDNs (Lue-Rich Holding Company, Inc. Project)/(ABN AMRO Bank N.V., Amsterdam LOC) A-1+ 2,435,000 ------------------------------------------------------ 700,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/(Fuji Bank, Ltd., Tokyo LOC) A-1 700,000 ------------------------------------------------------ 1,900,000 Carbon County, PA IDA Weekly VRDNs (Summit Management & Utilities, Inc.)/(PNC Bank, N.A. LOC) A-1 1,900,000 ------------------------------------------------------ 5,000,000 Carbon County, PA IDA, 3.90% CP (Panther Creek)/ (National Westminster Bank, PLC, London LOC), Mandatory Tender 1/18/1996 A-1+ 5,000,000 ------------------------------------------------------ 2,620,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.80% CP (Panther Creek)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 11/17/1995 A-1+ 2,620,000 ------------------------------------------------------ 6,825,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.85% CP (Panther Creek)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/25/1996 A-1+ 6,825,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 1,545,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.90% CP (Panther Creek)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/16/1996 A-1+ $ 1,545,000 ------------------------------------------------------ 5,000,000 Carbon County, PA IDA, Solid Waste Disposal Revenue Notes (Series 1995A), 4.00% RANs (Horsehead Resource Development, Inc.)/(Chemical Bank, New York LOC), 12/1/1995 P-1 5,000,000 ------------------------------------------------------ 7,300,000 Clearfield County, PA IDA Weekly VRDNs (Penn Traffic Co.)/(ABN AMRO Bank N.V., Amsterdam LOC) P-1 7,300,000 ------------------------------------------------------ 3,305,000 Clinton County, PA Municipal Authority, (Series A) Weekly VRDNs (Lock Haven Hospital)/(Mellon Bank NA, Pittsburgh LOC) P-1 3,305,000 ------------------------------------------------------ 3,000,000 Clinton County, PA, IDA Weekly VRDNs (Armstrong World Industries, Inc.)/(Mellon Bank NA, Pittsburgh LOC) P-1 3,000,000 ------------------------------------------------------ 17,000,000 Commonwealth of Pennsylvania, (First Series of 1995-1996), 4.50% TANs, 6/28/1996 SP-1+ 17,079,453 ------------------------------------------------------ 1,600,000 Cumberland County, PA IDA, Variable Rate Demand/ Fixed Industrial Development Bonds (Series 1994) Weekly VRDNs (Lane Enterprises, Inc. Project)/(Meridian Bank, Reading, PA LOC) P-1 1,600,000 ------------------------------------------------------ 3,900,000 East Hempfield Township, PA IDA, (Series 1985) Weekly VRDNs (Yellow Freight System)/(Wachovia Bank of NC, NA, Winston-Salem LOC) A-1 3,900,000 ------------------------------------------------------ 7,300,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Vincent Health System)/(Fuji Bank, Ltd., Tokyo LOC) A-1 7,300,000 ------------------------------------------------------ 500,000 Erie County, PA IDA Weekly VRDNs (P.H.B. Project)/ (PNC Bank, N.A. LOC) P-1 500,000 ------------------------------------------------------ 425,000 Erie County, PA IDA, (Series 1985) Weekly VRDNs (R. P-C Value, Inc.)/(PNC Bank, N.A. LOC) P-1 425,000 ------------------------------------------------------ 600,000 Erie County, PA IDA, (Series B) Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) P-1 600,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 1,665,000 Erie County, PA IDA, Multi Mode Revenue Refunding Bonds Weekly VRDNs (Corry Manor, Inc.)/(PNC Bank, N.A. LOC) A-1 $ 1,665,000 ------------------------------------------------------ 500,000 Forest County, PA IDA Weekly VRDNs (Industrial Timber & Land Co.)/(National City Bank, Cleveland, OH LOC) P-1 500,000 ------------------------------------------------------ 1,280,000 Forest County, PA IDA Weekly VRDNs (Marienville Health Care Facility)/(PNC Bank, N.A. LOC) P-1 1,280,000 ------------------------------------------------------ 1,800,000 Franklin County, PA IDA Weekly VRDNs (The Guarriello Limited Partnership)/(PNC Bank, N.A. LOC) P-1 1,800,000 ------------------------------------------------------ 2,800,000 Lackawanna County, PA IDA, (Series 1992) Weekly VRDNs (Hem Project)/(Corestates Bank N.A., Philadelphia, PA LOC) P-1 2,800,000 ------------------------------------------------------ 2,350,000 Lancaster, PA Higher Education Authority, College Revenue Bonds (Series 1995) Weekly VRDNs (Franklin and Marshall College Project) VMIG1 2,350,000 ------------------------------------------------------ 2,356,092 Lawrence County, PA IDA, (Series 1989A) Weekly VRDNs (Ellwood Uddeholm Steel Co.)/(Society National Bank, Cleveland, OH LOC) P-1 2,356,092 ------------------------------------------------------ 3,100,000 Lehigh County, PA IDA, (Series 1989A) Weekly VRDNs (Hershey Pizza Co., Inc.)/(PNC Bank, N.A. LOC) A-1 3,100,000 ------------------------------------------------------ 1,000,000 Lehigh County, PA, General Purpose Authority Revenue Bonds (Series 1990) Weekly VRDNs (Phoebe Terrace, Inc.)/(Meridian Bank, Reading, PA LOC) P-1 1,000,000 ------------------------------------------------------ 3,300,000 Lehigh County, PA, IDA Weekly VRDNs (Cedar Crest College)/(PNC Bank, N.A. LOC) A-1 3,300,000 ------------------------------------------------------ 1,005,000 McKean County, PA IDA, Multi-Mode Revenue Refunding Bonds Weekly VRDNs (Bradford Manor, Inc.)/(PNC Bank, N.A. LOC) A-1 1,005,000 ------------------------------------------------------ 3,300,000 Monroe County, PA IDA, PCR Weekly VRDNs (Cooper Industries, Inc.)/(Sanwa Bank Ltd, Osaka LOC) A-1 3,300,000 ------------------------------------------------------ 2,600,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (General Signal Corp.)/(Morgan Guaranty Trust Co., New York LOC) P-1 2,600,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 3,500,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (Seton Co.)/(Banque Paribas, Paris LOC) A-1 $ 3,500,000 ------------------------------------------------------ 1,300,000 Montgomery County, PA IDA, (Series 1992) Weekly VRDNs (RJI Limited Partnership)/(Meridian Bank, Reading, PA LOC) VMIG1 1,300,000 ------------------------------------------------------ 2,800,000 Montgomery County, PA IDA, (Series 84) Weekly VRDNs (Thomas & Betts Corp.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) P-1 2,800,000 ------------------------------------------------------ 6,980,000 Montgomery County, PA IDA, Commercial Development Revenue Bonds (Series 1992) Weekly VRDNs (Hickory Pointe Project)/(First Fidelity Bank, NA, New Jersey LOC) P-1 6,980,000 ------------------------------------------------------ 5,075,000 Moon Township, PA IDA Weekly VRDNs (Airport Hotel Associates)/(ABN AMRO Bank N.V., Amsterdam LOC) A-1+ 5,075,000 ------------------------------------------------------ 5,000,000 North Lebanon Township, PA, Municipal Authority Mortgage Weekly VRDNs (Grace Community, Inc.)/ (Meridian Bank, Reading, PA LOC) VMIG1 5,000,000 ------------------------------------------------------ 9,000,000 Northampton County, PA IDA, 3.85% CP (Citizens Utilities Co.), Mandatory Tender 11/9/1995 A-1+ 9,000,000 ------------------------------------------------------ 2,000,000 Northampton County, PA IDA, 3.90% CP (Citizens Utilities Co.), Mandatory Tender 12/14/1995 A-1+ 2,000,000 ------------------------------------------------------ 1,590,000 Northumberland County PA IDA, Variable Rate Demand/ Fixed Rate Revenue Bonds (Series A of 1995) Weekly VRDNs (Furman Farms, Inc. Project)/(Meridian Bank, Reading, PA LOC) P-1 1,590,000 ------------------------------------------------------ 1,875,000 Pennsylvania Education Development Authority Weekly VRDNs (Cyrogenics, Inc.)/(PNC Bank, N.A. LOC) A-1 1,875,000 ------------------------------------------------------ 3,300,000 Pennsylvania Education Development Authority Weekly VRDNs (Industrial Scientific Corp.)/(Mellon Bank NA, Pittsburgh LOC) P-1 3,300,000 ------------------------------------------------------ 750,000 Pennsylvania Education Development Authority Weekly VRDNs (Pioneer Fluid)/(PNC Bank, N.A. LOC) A-1 750,000 ------------------------------------------------------ 675,000 Pennsylvania Education Development Authority Weekly VRDNs (RMF Associates)/(PNC Bank, N.A. LOC) P-1 675,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 900,000 Pennsylvania Education Development Authority Weekly VRDNs (Reace Associates)/(PNC Bank, N.A. LOC) A-1 $ 900,000 ------------------------------------------------------ 4,400,000 Pennsylvania Education Development Authority Weekly VRDNs (Walnut And Craig)/(PNC Bank, N.A. LOC) P-1 4,400,000 ------------------------------------------------------ 500,000 Pennsylvania Education Development Authority, (Series B) Weekly VRDNs (Payne Printing Co.)/ (PNC Bank, N.A. LOC) A-1 500,000 ------------------------------------------------------ 1,300,000 Pennsylvania Education Development Authority, Revenue Bonds (Series G4) Weekly VRDNs (Metamora Products)/ (PNC Bank, N.A. LOC) A-1 1,300,000 ------------------------------------------------------ 325,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (DDI Pharmaceuticals, Inc.)/ (PNC Bank, N.A. LOC) A-1 325,000 ------------------------------------------------------ 625,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (RAM Forest Products)/ (PNC Bank, N.A. LOC) A-1 625,000 ------------------------------------------------------ 6,915,000 Pennsylvania Housing Finance Authority, 3.90% TOBs (First National Bank of Chicago LIQ), Optional Tender 4/1/1996 NR(2) 6,915,000 ------------------------------------------------------ 980,000 Pennsylvania Housing Finance Authority, Section 8 Assisted Residential Development Refunding Bonds (Series 1992A) Weekly VRDNs (CGIC INS)/(Citibank NA, New York LIQ) NR(1) 980,000 ------------------------------------------------------ 2,420,000 Pennsylvania Housing Finance Authority, Tender Option Bonds/Single Family Housing (Series O), 4.875% TOBs (Meridian Bank, Reading, PA LIQ), Optional Tender 4/1/1996 NR(2) 2,420,000 ------------------------------------------------------ 3,190,000 Pennsylvania State Higher Education Assistance Agency, 4.50% TOBs (Carnegie-Mellon University), Optional Tender 5/1/1996 A-1 3,190,000 ------------------------------------------------------ 9,405,000 Pennsylvania State Higher Education Facilities Authority, 4.20% TOBs (Carnegie-Mellon University), Optional Tender 11/1/1995 A-1 9,405,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 1,945,000 Pennsylvania State Higher Education Facilities Authority, College & University Revenues/Drexel University, 7.70% Bonds (United States Treasury PRF), 11/1/1995 (@102) Aaa $ 1,983,900 ------------------------------------------------------ 3,100,000 Pennsylvania State University, Series 1995 Notes, 5.25% BANs, 4/5/1996 MIG1 3,110,758 ------------------------------------------------------ 9,000,000 Philadelphia Redevelopment Authority, Multi-Family Revenue Bonds (Series 1985) Weekly VRDNs (Franklin Town Towers)/(Marine Midland Bank N.A., Buffalo, NY LOC) P-2 9,000,000 ------------------------------------------------------ 7,440,000 Philadelphia, PA IDA, (Series 93) Weekly VRDNs (Sackett Development)/(Mellon Bank NA, Pittsburgh LOC) A1 7,440,000 ------------------------------------------------------ 7,000,000 Philadelphia, PA IDA, 4.25% TOBs (Suite Hotel)/(First National Bank of Boston, MA LOC), Optional Tender 6/1/1996 P-1 7,000,000 ------------------------------------------------------ 3,700,000 Philadelphia, PA IDA, Commercial Development Revenue Bonds (Series A), 4.00% TOBs (Economy Inn)/ (First National Bank of Boston, MA LOC), Optional Tender 7/1/1996 P-1 3,700,000 ------------------------------------------------------ 1,700,000 Philadelphia, PA IDA, Commercial Development Revenue Bonds (Series B), 4.00% TOBs (Economy Inn)/(First National Bank of Boston, MA LOC), Optional Tender 7/1/1996 A-2 1,700,000 ------------------------------------------------------ 5,500,000 Philadelphia, PA, (Series A), 4.50% TRANs, 6/27/1996 SP-1 5,517,306 ------------------------------------------------------ 4,000,000 Philadelphia, PA, GO (Series 1990), 3.85% CP (Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender 11/16/1995 VMIG1 4,000,000 ------------------------------------------------------ 4,010,000 Philadelphia, PA, GO (Series 1990), 4.00% CP (Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender 11/6/1995 Aa3 4,010,000 ------------------------------------------------------ 5,000,000 Port Authority of Allegheny County, PA, (Series 1995A), 3.875% GANs (PNC Bank, N.A. LOC), 6/28/1996 NR(3) 5,000,000 ------------------------------------------------------ 2,320,000 Sayre, PA, Health Care Facilities Authority Weekly VRDNs (VHA of Pennsylvania)/(AMBAC INS)/(First National Bank of Chicago LIQ) A-1 2,320,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 4,000,000 Temple University, Commonwealth System of Higher Education University Funding Obligations (Series 1995), 5.00% BANs, 5/22/1996 SP-1+ $ 4,014,883 ------------------------------------------------------ 3,824,000 Upper Darby School District, PA, 4.13% TRANs, 6/28/1996 NR(3) 3,825,432 ------------------------------------------------------ 1,550,000 Venango, PA IDA, (Series A), 3.95% CP (Scrubgrass Power Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/10/1996 A-1+ 1,550,000 ------------------------------------------------------ 4,000,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.80% CP (Scrubgrass Power Corp.)/ (National Westminster Bank, PLC, London LOC), Mandatory Tender 11/13/1995 A-1+ 4,000,000 ------------------------------------------------------ 2,100,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.95% CP (Scrubgrass Power Corp.)/ (National Westminster Bank, PLC, London LOC), Mandatory Tender 1/26/1996 A-1+ 2,100,000 ------------------------------------------------------ 870,000 Washington County, PA Hospital Authority, (Series 1990) Weekly VRDNs (Mac Plastics, Inc.)/(National City Bank, Cleveland, OH LOC) AA 870,000 ------------------------------------------------------ 5,700,000 Washington County, PA Municipal Authority Facilities, (Series 1985A) Weekly VRDNs (1985-A Pooled Equipment Lease Program)/(Sanwa Bank Ltd, Osaka LOC) VMIG1 5,700,000 ------------------------------------------------------ 1,350,000 Washington County, PA, IDA (Series 1988) Weekly VRDNs (Coca-Cola Co.)/(Mellon Bank NA, Pittsburgh LOC) P-1 1,350,000 ------------------------------------------------------ 1,100,000 West Cornwall Township, PA Municipal Authority, Revenue Bonds (Series 1995) Weekly VRDNs (Lebanon Valley Brethern Home Project (PA))/(Meridian Bank, Reading, PA LOC) P-1 1,100,000 ------------------------------------------------------ 1,418,000 West York Area School District, PA, Tax & Revenue Anticipation Notes (Series 1995), 4.26% TRANs, 6/28/1996 NR(3) 1,418,711 ------------------------------------------------------ 2,588,850 Woodland Hills School District, PA, 4.21% TRANs, 6/28/1996 NR 2,589,819 ------------------------------------------------------ ------------ Total 304,856,354 ------------------------------------------------------ ------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PUERTO RICO--0.2% ------------------------------------------------------ $ 600,000 Puerto Rico Government Development Bank Weekly VRDNs (Credit Suisse, Zurich LOC) A-1+ $ 600,000 ------------------------------------------------------ ------------ TOTAL INVESTMENTS, AT AMORTIZED COST(A) $305,456,354 ------------------------------------------------------ ------------
Securities that are subject to the Alternative Minimum Tax represent 56.5% of the portfolio as calculated based upon total portfolio market value. (a) Also represents cost for federal tax purposes. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. Note: The categories of investments are shown as a percentage of net assets ($307,191,765) at October 31, 1995. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronym(s) are used throughout this portfolio: AMBAC -- American Municipal Bond Assurance Corporation BANs -- Bond Anticipation Notes CGIC -- Capital Guaranty Insurance Corporation CP -- Commercial Paper GANs -- Grant Anticipation Notes GO -- General Obligation HDA -- Hospital Development Authority IDA -- Industrial Development Authority IDRB -- Industrial Development Revenue Bond INS -- Insured LIQ -- Liquidity Agreement LOC -- Letter of Credit PCR -- Pollution Control Revenue PLC -- Public Limited Company PRF -- Prerefunded RANs -- Revenue Anticipation Notes TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds TRANs -- Tax and Revenue Anticipation Notes VHA -- Veterans Housing Administration VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Investments in securities, at amortized cost and value $305,456,354 - ------------------------------------------------------------------------------- Cash 302,320 - ------------------------------------------------------------------------------- Income receivable 2,170,862 - ------------------------------------------------------------------------------- Receivable for shares sold 2,272 - ------------------------------------------------------------------------------- ------------ Total assets 307,931,808 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for shares redeemed 1,505 - -------------------------------------------------------------------- Income distribution payable 634,420 - -------------------------------------------------------------------- Accrued expenses 104,118 - -------------------------------------------------------------------- -------- Total liabilities 740,043 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 307,191,765 shares outstanding $307,191,765 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------- $276,407,484 / 276,407,484 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------ CASH SERIES SHARES: - ------------------------------------------------------------------------------- $28,255,264 / 28,255,264 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------ INSTITUTIONAL SHARES: - ------------------------------------------------------------------------------- $2,529,017 / 2,529,017 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------- Interest $11,660,838 - --------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------- Investment advisory fee $1,445,400 - ------------------------------------------------------------------ Administrative personnel and services fee 218,834 - ------------------------------------------------------------------ Custodian fees 54,452 - ------------------------------------------------------------------ Transfer and dividend disbursing agent fees and expenses 51,317 - ------------------------------------------------------------------ Directors'/Trustees' fees 1,626 - ------------------------------------------------------------------ Auditing fees 14,983 - ------------------------------------------------------------------ Legal fees 3,910 - ------------------------------------------------------------------ Portfolio accounting fees 67,074 - ------------------------------------------------------------------ Distribution services fee--Cash Series Shares 96,501 - ------------------------------------------------------------------ Shareholder services fee--Institutional Service Shares 661,792 - ------------------------------------------------------------------ Shareholder services fee--Cash Series Shares 60,313 - ------------------------------------------------------------------ Shareholder services fee--Institutional Shares 596 - ------------------------------------------------------------------ Share registration costs 42,662 - ------------------------------------------------------------------ Printing and postage 15,292 - ------------------------------------------------------------------ Insurance premiums 6,469 - ------------------------------------------------------------------ Miscellaneous 5,970 - ------------------------------------------------------------------ ---------- Total expenses 2,747,191 - ------------------------------------------------------------------ Waivers-- - ------------------------------------------------------------------ Waiver of investment advisory fee $(222,841) - ------------------------------------------------------ Waiver of distribution services fee--Cash Series Shares (44,624) - ------------------------------------------------------ Waiver of shareholder services fee--Institutional Service Shares (496,060) - ------------------------------------------------------ Waiver of shareholder services fee--Cash Series Shares (1,766) - ------------------------------------------------------ Waiver of shareholder services fee--Institutional Shares (596) - ------------------------------------------------------ --------- Total waivers (765,887) - ------------------------------------------------------------------ ---------- Net expenses 1,981,304 - ------------------------------------------------------------------ ----------- Net investment income $ 9,679,534 - --------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ------------------------------- 1995 1994 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------------- OPERATIONS-- - ------------------------------------------------------------- Net investment income $ 9,679,534 $ 6,997,846 - ------------------------------------------------------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ------------------------------------------------------------- Distributions from net investment income - ------------------------------------------------------------- Institutional Service Shares (8,951,830) (6,625,711) - ------------------------------------------------------------- Cash Series Shares (718,640) (372,135) - ------------------------------------------------------------- Institutional Shares (9,064) 0 - ------------------------------------------------------------- ------------- ------------- Change in net assets resulting from distributions to shareholders (9,679,534) (6,997,846) - ------------------------------------------------------------- ------------- ------------- SHARE TRANSACTIONS-- - ------------------------------------------------------------- Proceeds from sale of shares 1,028,950,579 800,515,592 - ------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,339,163 1,321,124 - ------------------------------------------------------------- Cost of shares redeemed (971,610,388) (891,403,705) - ------------------------------------------------------------- ------------- ------------- Change in net assets resulting from share transactions 59,679,354 (89,566,989) - ------------------------------------------------------------- ------------- ------------- Change in net assets 59,679,354 (89,566,989) - ------------------------------------------------------------- NET ASSETS: - ------------------------------------------------------------- Beginning of period 247,512,411 337,079,400 - ------------------------------------------------------------- ------------- ------------- End of period $ 307,191,765 $ 247,512,411 - ------------------------------------------------------------- ------------- -------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Pennsylvania Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers three classes of shares: Institutional Service Shares, Cash Series Shares and Institutional Shares. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 75.5% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- supported (backed) by a letter of credit for any one institution or agency does not exceed 11.7% of total investments. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1995, capital paid-in aggregated $307,191,765. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, ----------------------------- INSTITUTIONAL SERVICE SHARES 1995 1994 - --------------------------------------------------------------- ------------ ------------ Shares sold 940,400,092 749,671,233 - --------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,631,397 937,173 - --------------------------------------------------------------- Shares redeemed (894,784,261) (839,966,777) - --------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional Service share transactions 47,247,228 (89,358,371) - --------------------------------------------------------------- ------------ ------------
YEAR ENDED OCTOBER 31, ----------------------------- CASH SERIES SHARES 1995 1994 - --------------------------------------------------------------- ------------ ------------ Shares sold 85,377,025 50,844,359 - --------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 705,513 383,951 - --------------------------------------------------------------- Shares redeemed (76,179,429) (51,436,928) - --------------------------------------------------------------- ------------ ------------ Net change resulting from Cash Series share transactions 9,903,109 (208,618) - --------------------------------------------------------------- ------------ ------------
YEAR ENDED OCTOBER 31, ----------------------------- INSTITUTIONAL SHARES 1995(A) 1994 - --------------------------------------------------------------- ------------ ------------ Shares sold 3,173,462 0 - --------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 2,253 0 - --------------------------------------------------------------- Shares redeemed (646,698) 0 - --------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional share transactions 2,529,017 0 - --------------------------------------------------------------- ------------ ------------ Net change resulting from share transactions 59,679,354 (89,566,989) - --------------------------------------------------------------- ------------ ------------
(a) For the period from August 23, 1995 (date of initial public investment) to October 31, 1995. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Cash Series shares. The Plan provides that the Fund may incur distribution expenses up to .40 of 1% of the average daily net assets of the Cash Series Shares, annually to compensate FSC. The distributor may voluntarily choose to waive any portion of its fee. The distributor can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS,") the Fund will pay FSS up to .25 of 1% of average daily net assets of the Fund for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. For the fiscal year ended October 31, 1995, the Institutional Shares fully waived its shareholder services fee. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ also maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- INTERFUND TRANSACTIONS--During the period ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common Officers. These transactions were made at current market value pursuant to Rule 17a-7 under the Act amounting to $488,240,000 and $437,690,000 respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors of the above companies. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Pennsylvania Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Pennsylvania Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights (see pages 2, 16 and 17 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Pennsylvania Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 ADDRESSES - -------------------------------------------------------------------------------- Pennsylvania Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 - ------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - ------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PENNSYLVANIA MUNICIPAL CASH TRUST INSTITUTIONAL SERVICE SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 CUSIP 314229204 9101005A-SS (12/95) PENNSYLVANIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS The Institutional Shares of Pennsylvania Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Pennsylvania municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Pennsylvania, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Pennsylvania Municipal Securities 6 Investment Risks 6 Non-Diversification 6 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Institutional Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ HOW TO REDEEM SHARES 10 - ------------------------------------------------------ ACCOUNT AND SHARE INFORMATION 11 - ------------------------------------------------------ TAX INFORMATION 12 - ------------------------------------------------------ Federal Income Tax 12 State and Local Taxes 13 OTHER CLASSES OF SHARES 13 - ------------------------------------------------------ PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- CASH SERIES SHARES 15 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SERVICE SHARES 16 - ------------------------------------------------------ FINANCIAL STATEMENTS 17 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 34 - ------------------------------------------------------ ADDRESSES 35 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................................. None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)................................................. None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................... None Redemption Fee (as a percentage of amount redeemed, if applicable).................... None Exchange Fee.......................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)..................................................... 0.28% 12b-1 Fee............................................................................. None Total Other Expenses.................................................................. 0.17% Shareholder Services Fee (after waiver) (2).................................. 0.00% Total Operating Expenses (3)..................................................... 0.45%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The maximum shareholder services fee is 0.25%. (3) The total operating expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1996. The total operating expenses were 0.45% for the fiscal year ended October 31, 1995 and would have been 0.91% absent the voluntary waivers of a portion of the management fee and the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years - --------------------------------------------------------------------------- ------ ------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period. ......................................................................... $5 $14
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 34.
YEAR ENDED OCTOBER 31, 1995(A) ------------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 - ------------------------------------------------------------------------------ Net investment income 0.01 - ------------------------------------------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------------------------------------------ Distributions from net investment income (0.01) - ------------------------------------------------------------------------------ --------- NET ASSET VALUE, END OF PERIOD $1.00 - ------------------------------------------------------------------------------ --------- TOTAL RETURN (B) 1.03% - ------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------------ Expenses 0.45%* - ------------------------------------------------------------------------------ Net investment income 3.81%* - ------------------------------------------------------------------------------ Expense waiver/reimbursement (c) 0.46%* - ------------------------------------------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------------------------------------------ Net assets, end of period (000 omitted) $2,529 - ------------------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from August 23, 1995 (date of initial public investment) to October 31, 1995. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Trustees have established three classes of shares known as Institutional Shares, Institutional Service Shares and Cash Series Shares. This prospectus relates only to Institutional Shares of the Fund, which are designed primarily for financial institutions acting in a fiduciary or agency capacity as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term Pennsylvania municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Pennsylvania taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Pennsylvania municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Pennsylvania dividend and interest income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Pennsylvania and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Pennsylvania state income tax imposed upon non-corporate taxpayers ("Pennsylvania Municipal Securities"). Examples of Pennsylvania Municipal Securities include, but are not limited to: - tax and revenue anticipation notes ("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 debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Pennsylvania Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Pennsylvania Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Pennsylvania Municipal Securities is subject to the federal alternative minimum tax. PENNSYLVANIA MUNICIPAL SECURITIES Pennsylvania Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Pennsylvania Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Pennsylvania Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Pennsylvania Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Pennsylvania Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Pennsylvania Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Pennsylvania Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Pennsylvania Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Pennsylvania Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. The Fund will invest in securities for income earnings rather than trading for profit. The Fund will not vary its investments, except subject to certain conditions. The above investment limitations cannot be changed without shareholder approval. As a matter of nonfundamental policy, the Fund will not invest more than 10% of its net assets in illiquid securities. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of Institutional Shares, computed at an annual rate, to obtain certain personal services for shareholders and provide maintenance of shareholder accounts ("shareholder services"). From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor may pay financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide certain services to shareholders. These services may include, but are not limited to, distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of shares. Any fees paid for these services by the distributor will be reimbursed by the adviser and not the Fund. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS - --------------------- ----------------------------------- .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of Institutional Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased either by wire or by check. The Fund reserves the right to reject any purchase request. To make a purchase, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken by telephone. The minimum initial investment is $25,000. However, an account may be opened with a smaller amount as long as the minimum is reached within 90 days. Minimum investments will be calculated by combining all accounts maintained with the Fund. Financial institutions may impose different minimum investment requirements on their customers. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as follows: Federated Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Pennsylvania Municipal Cash Trust--Institutional Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by mailing a check made payable to Pennsylvania Municipal Cash Trust--Institutional Shares to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are considered received when payment by check is converted into federal funds. This is normally the next business day after the check is received. SUBACCOUNTING SERVICES. Financial institutions are encouraged to open single master accounts. A subaccounting system is available through the transfer agent to minimize internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Fund shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. State securities laws may require certain financial institutions such as depository institutions to register as dealers. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after Federated Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 p.m. (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 4, 1995, BHC Securities Inc., Philadelphia, PA, owned 35.87% of the voting securities of the Fund's Cash Series Shares and BB Securities Co., Blue Ball, PA, owned 33.30% of the voting securities of the Fund's Institutional Shares, and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Fund shares may be subject to personal property taxes imposed by counties, municipalities, and school districts in Pennsylvania to the extent that the portfolio securities in the Fund would be subject to such taxes if owned directly by residents of those jurisdictions. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. PENNSYLVANIA TAXES. The Fund received a ruling from the Commonwealth of Pennsylvania Department of Revenue that interest derived by the Fund from obligations free from state taxation in Pennsylvania is not taxable on pass-through to Fund shareholders for purposes of Pennsylvania personal income taxes. This was based on the existence of the Pennsylvania Investment Restrictions (see "Investment Limitations"). However, legislation enacted in December 1993, eliminates the necessity of the Pennsylvania Investment Restrictions. This legislation also generally repeals the Pennsylvania personal income tax exemption for gains from the sale of tax-exempt obligations, including the exemption for distributions from the Fund to the extent that they are derived from gains from tax-exempt obligations. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers other classes. Cash Series Shares are sold at net asset value primarily to retail customers of financial institutions and are subject to a minimum initial investment of $10,000 over a 90-day period; and Institutional Service Shares are sold at net asset value primarily to financial institutions acting in an agency capacity and are subject to a minimum initial investment of $25,000 over a 90-day period. All classes are subject to certain of the same expenses. Cash Series Shares are distributed under a 12b-1 Plan adopted by the Fund and also are subject to shareholder services fees. Institutional Service Shares are distributed with no 12b-1 Plan but are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-235-4669. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield for shares. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the shares' tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--CASH SERIES SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 34.
YEAR ENDED OCTOBER 31, --------------------------------------------------- 1995 1994 1993 1992 1991(A) ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------------- Net investment income 0.03 0.02 0.02 0.03 0.03 - -------------------------------------------- LESS DISTRIBUTIONS - -------------------------------------------- Distributions from net investment income (0.03) (0.02) (0.02) (0.03) (0.03) - -------------------------------------------- ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------------- ------ ------ ------ ------ ------ TOTAL RETURN (B) 3.02% 1.84% 1.83% 2.67% 3.55% - -------------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------------- Expenses 1.05% 1.04% 0.97% 0.96% 0.78%* - -------------------------------------------- Net investment income 2.98% 1.73% 1.88% 2.64% 3.92%* - -------------------------------------------- Expense waiver/reimbursement (c) 0.28% 0.18% 0.12% 0.12% 0.28%* - -------------------------------------------- SUPPLEMENTAL DATA - -------------------------------------------- Net assets, end of period (000 omitted) $28,255 $18,352 $18,561 $24,694 $19,846 - --------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from January 25, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 34.
YEAR ENDED OCTOBER 31, -------------------------------------------------------------- 1995 1994 1993 1992 1991 1990(A) ------ ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------- Net investment income 0.03 0.02 0.02 0.03 0.05 0.05 - ----------------------------------- LESS DISTRIBUTIONS - ----------------------------------- Distributions from net investment income (0.03) (0.02) (0.02) (0.03) (0.05) (0.05) - ----------------------------------- ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------- ------ ------ ------ ------ ------ ------ TOTAL RETURN (B) 3.44% 2.25% 2.24% 3.08% 4.64% 5.78% - ----------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------- Expenses 0.65% 0.64% 0.57% 0.56% 0.55% 0.50%* - ----------------------------------- Net investment income 3.38% 2.19% 2.21% 3.04% 4.53% 5.56%* - ----------------------------------- Expense waiver/reimbursement (c) 0.27% 0.02% 0.12% 0.12% 0.11% 0.18%* - ----------------------------------- SUPPLEMENTAL DATA - ----------------------------------- Net assets, end of period (000 omitted) $276,407 $229,160 $318,518 $308,200 $317,165 $275,882 - -----------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from November 21, 1989 (date of initial public investment) to October 31, 1990. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--99.4% - ------------------------------------------------------------------------ PENNSYLVANIA--99.2% ------------------------------------------------------ $ 2,350,000 Allegheny County, PA HDA, (Series 1988A) Weekly VRDNs (Allegheny Hospital)/(PNC Bank, N.A. LOC) VMIG1 $ 2,350,000 ------------------------------------------------------ 1,000,000 Allegheny County, PA IDA, (Series 1991) Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) P-1 1,000,000 ------------------------------------------------------ 1,500,000 Allegheny County, PA, IDA, (Series 1991B) Weekly VRDNs (Shandon, Inc.)/(PNC Bank, N.A. LOC) P-1 1,500,000 ------------------------------------------------------ 6,500,000 Allegheny County, PA IDA, 4.75% CP (Duquesne Light Power Co.)/(Barclays Bank PLC, London LOC), Mandatory Tender 12/7/1995 A-1+ 6,500,000 ------------------------------------------------------ 4,975,000 Allegheny County, PA IDA, Adjustable Rate Commercial Development Revenue Bonds (Series 1992) Weekly VRDNs (Eleven Parkway Center Associates)/(Integra Bank, Pittsburgh LOC) A-1 4,975,000 ------------------------------------------------------ 5,000,000 Allegheny County, PA IDA, PCR (Series 1992A), 3.75% TOBs (Duquesne Light Power Co.)/(Canadian Imperial Bank of Commerce, Toronto LOC), Optional Tender 11/30/1995 P-1 5,000,000 ------------------------------------------------------ 3,000,000 Beaver County, PA IDA, PCR Refunding Bonds (1992 Series-E), 3.85% CP (Toledo Edison Co.)/(Toronto- Dominion Bank LOC), Mandatory Tender 3/6/1996 A1 3,000,000 ------------------------------------------------------ 1,260,000 Berks County, PA IDA Weekly VRDNs (ADC Quaker Maid Meats)/(Meridian Bank, Reading, PA LOC) VMIG1 1,260,000 ------------------------------------------------------ 1,580,000 Berks County, PA IDA Weekly VRDNs (Beacon Container)/ (Corestates Bank N.A., Philadelphia, PA LOC) P-1 1,580,000 ------------------------------------------------------ 2,000,000 Berks County, PA IDA, (Series 1988) Weekly VRDNs (Arrow Electronics, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) P-1 2,000,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 2,000,000 Berks County, PA IDA, Variable Rate Demand/Fixed Rate Mfg Facilities Revenue Bonds (Series 1995) Weekly VRDNs (Grafika Commercial Printing, Inc.)/(Meridian Bank, Reading, PA LOC) P-1 $ 2,000,000 ------------------------------------------------------ 2,000,000 Berks County, PA, (Series 1995), 5.20% TRANs, 12/31/1995 NR(3) 2,000,000 ------------------------------------------------------ 2,445,000 Bucks County, PA IDA Weekly VRDNs (Double H Plastics, Inc.)/(Meridian Bank, Reading, PA LOC) VMIG1 2,445,000 ------------------------------------------------------ 2,960,000 Bucks County, PA IDA Weekly VRDNs (Pennsylvania Associates)/(Meridian Bank, Reading, PA LOC) P-1 2,960,000 ------------------------------------------------------ 5,090,000 Bucks County, PA IDA, (Series 1991) Weekly VRDNs (Cabot Medical Corp.)/(Meridian Bank, Reading, PA LOC) VMIG1 5,090,000 ------------------------------------------------------ 4,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) P-1 4,000,000 ------------------------------------------------------ 1,000,000 Butler County, PA IDA, (Series 1992B) Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) P-1 1,000,000 ------------------------------------------------------ 2,435,000 Butler County, PA IDA, Variable Rate IDRB (Series 1994) Weekly VRDNs (Lue-Rich Holding Company, Inc. Project)/(ABN AMRO Bank N.V., Amsterdam LOC) A-1+ 2,435,000 ------------------------------------------------------ 700,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/(Fuji Bank, Ltd., Tokyo LOC) A-1 700,000 ------------------------------------------------------ 1,900,000 Carbon County, PA IDA Weekly VRDNs (Summit Management & Utilities, Inc.)/(PNC Bank, N.A. LOC) A-1 1,900,000 ------------------------------------------------------ 5,000,000 Carbon County, PA IDA, 3.90% CP (Panther Creek)/ (National Westminster Bank, PLC, London LOC), Mandatory Tender 1/18/1996 A-1+ 5,000,000 ------------------------------------------------------ 2,620,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.80% CP (Panther Creek)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 11/17/1995 A-1+ 2,620,000 ------------------------------------------------------ 6,825,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.85% CP (Panther Creek)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/25/1996 A-1+ 6,825,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 1,545,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.90% CP (Panther Creek)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/16/1996 A-1+ $ 1,545,000 ------------------------------------------------------ 5,000,000 Carbon County, PA IDA, Solid Waste Disposal Revenue Notes (Series 1995A), 4.00% RANs (Horsehead Resource Development, Inc.)/(Chemical Bank, New York LOC), 12/1/1995 P-1 5,000,000 ------------------------------------------------------ 7,300,000 Clearfield County, PA IDA Weekly VRDNs (Penn Traffic Co.)/(ABN AMRO Bank N.V., Amsterdam LOC) P-1 7,300,000 ------------------------------------------------------ 3,305,000 Clinton County, PA Municipal Authority, (Series A) Weekly VRDNs (Lock Haven Hospital)/(Mellon Bank NA, Pittsburgh LOC) P-1 3,305,000 ------------------------------------------------------ 3,000,000 Clinton County, PA, IDA Weekly VRDNs (Armstrong World Industries, Inc.)/(Mellon Bank NA, Pittsburgh LOC) P-1 3,000,000 ------------------------------------------------------ 17,000,000 Commonwealth of Pennsylvania, (First Series of 1995-1996), 4.50% TANs, 6/28/1996 SP-1+ 17,079,453 ------------------------------------------------------ 1,600,000 Cumberland County, PA IDA, Variable Rate Demand/ Fixed Industrial Development Bonds (Series 1994) Weekly VRDNs (Lane Enterprises, Inc. Project)/(Meridian Bank, Reading, PA LOC) P-1 1,600,000 ------------------------------------------------------ 3,900,000 East Hempfield Township, PA IDA, (Series 1985) Weekly VRDNs (Yellow Freight System)/(Wachovia Bank of NC, NA, Winston-Salem LOC) A-1 3,900,000 ------------------------------------------------------ 7,300,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Vincent Health System)/(Fuji Bank, Ltd., Tokyo LOC) A-1 7,300,000 ------------------------------------------------------ 500,000 Erie County, PA IDA Weekly VRDNs (P.H.B. Project)/ (PNC Bank, N.A. LOC) P-1 500,000 ------------------------------------------------------ 425,000 Erie County, PA IDA, (Series 1985) Weekly VRDNs (R. P-C Value, Inc.)/(PNC Bank, N.A. LOC) P-1 425,000 ------------------------------------------------------ 600,000 Erie County, PA IDA, (Series B) Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) P-1 600,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 1,665,000 Erie County, PA IDA, Multi Mode Revenue Refunding Bonds Weekly VRDNs (Corry Manor, Inc.)/(PNC Bank, N.A. LOC) A-1 $ 1,665,000 ------------------------------------------------------ 500,000 Forest County, PA IDA Weekly VRDNs (Industrial Timber & Land Co.)/(National City Bank, Cleveland, OH LOC) P-1 500,000 ------------------------------------------------------ 1,280,000 Forest County, PA IDA Weekly VRDNs (Marienville Health Care Facility)/(PNC Bank, N.A. LOC) P-1 1,280,000 ------------------------------------------------------ 1,800,000 Franklin County, PA IDA Weekly VRDNs (The Guarriello Limited Partnership)/(PNC Bank, N.A. LOC) P-1 1,800,000 ------------------------------------------------------ 2,800,000 Lackawanna County, PA IDA, (Series 1992) Weekly VRDNs (Hem Project)/(Corestates Bank N.A., Philadelphia, PA LOC) P-1 2,800,000 ------------------------------------------------------ 2,350,000 Lancaster, PA Higher Education Authority, College Revenue Bonds (Series 1995) Weekly VRDNs (Franklin and Marshall College Project) VMIG1 2,350,000 ------------------------------------------------------ 2,356,092 Lawrence County, PA IDA, (Series 1989A) Weekly VRDNs (Ellwood Uddeholm Steel Co.)/(Society National Bank, Cleveland, OH LOC) P-1 2,356,092 ------------------------------------------------------ 3,100,000 Lehigh County, PA IDA, (Series 1989A) Weekly VRDNs (Hershey Pizza Co., Inc.)/(PNC Bank, N.A. LOC) A-1 3,100,000 ------------------------------------------------------ 1,000,000 Lehigh County, PA, General Purpose Authority Revenue Bonds (Series 1990) Weekly VRDNs (Phoebe Terrace, Inc.)/(Meridian Bank, Reading, PA LOC) P-1 1,000,000 ------------------------------------------------------ 3,300,000 Lehigh County, PA, IDA Weekly VRDNs (Cedar Crest College)/(PNC Bank, N.A. LOC) A-1 3,300,000 ------------------------------------------------------ 1,005,000 McKean County, PA IDA, Multi-Mode Revenue Refunding Bonds Weekly VRDNs (Bradford Manor, Inc.)/(PNC Bank, N.A. LOC) A-1 1,005,000 ------------------------------------------------------ 3,300,000 Monroe County, PA IDA, PCR Weekly VRDNs (Cooper Industries, Inc.)/(Sanwa Bank Ltd, Osaka LOC) A-1 3,300,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 2,600,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (General Signal Corp.)/(Morgan Guaranty Trust Co., New York LOC) P-1 $ 2,600,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 3,500,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (Seton Co.)/(Banque Paribas, Paris LOC) A-1 $ 3,500,000 ------------------------------------------------------ 1,300,000 Montgomery County, PA IDA, (Series 1992) Weekly VRDNs (RJI Limited Partnership)/(Meridian Bank, Reading, PA LOC) VMIG1 1,300,000 ------------------------------------------------------ 2,800,000 Montgomery County, PA IDA, (Series 84) Weekly VRDNs (Thomas & Betts Corp.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) P-1 2,800,000 ------------------------------------------------------ 6,980,000 Montgomery County, PA IDA, Commercial Development Revenue Bonds (Series 1992) Weekly VRDNs (Hickory Pointe Project)/(First Fidelity Bank, NA, New Jersey LOC) P-1 6,980,000 ------------------------------------------------------ 5,075,000 Moon Township, PA IDA Weekly VRDNs (Airport Hotel Associates)/(ABN AMRO Bank N.V., Amsterdam LOC) A-1+ 5,075,000 ------------------------------------------------------ 5,000,000 North Lebanon Township, PA, Municipal Authority Mortgage Weekly VRDNs (Grace Community, Inc.)/ (Meridian Bank, Reading, PA LOC) VMIG1 5,000,000 ------------------------------------------------------ 9,000,000 Northampton County, PA IDA, 3.85% CP (Citizens Utilities Co.), Mandatory Tender 11/9/1995 A-1+ 9,000,000 ------------------------------------------------------ 2,000,000 Northampton County, PA IDA, 3.90% CP (Citizens Utilities Co.), Mandatory Tender 12/14/1995 A-1+ 2,000,000 ------------------------------------------------------ 1,590,000 Northumberland County PA IDA, Variable Rate Demand/ Fixed Rate Revenue Bonds (Series A of 1995) Weekly VRDNs (Furman Farms, Inc. Project)/(Meridian Bank, Reading, PA LOC) P-1 1,590,000 ------------------------------------------------------ 1,875,000 Pennsylvania Education Development Authority Weekly VRDNs (Cyrogenics, Inc.)/(PNC Bank, N.A. LOC) A-1 1,875,000 ------------------------------------------------------ 3,300,000 Pennsylvania Education Development Authority Weekly VRDNs (Industrial Scientific Corp.)/(Mellon Bank NA, Pittsburgh LOC) P-1 3,300,000 ------------------------------------------------------ 750,000 Pennsylvania Education Development Authority Weekly VRDNs (Pioneer Fluid)/(PNC Bank, N.A. LOC) A-1 750,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 675,000 Pennsylvania Education Development Authority Weekly VRDNs (RMF Associates)/(PNC Bank, N.A. LOC) P-1 $ 675,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 900,000 Pennsylvania Education Development Authority Weekly VRDNs (Reace Associates)/(PNC Bank, N.A. LOC) A-1 $ 900,000 ------------------------------------------------------ 4,400,000 Pennsylvania Education Development Authority Weekly VRDNs (Walnut And Craig)/(PNC Bank, N.A. LOC) P-1 4,400,000 ------------------------------------------------------ 500,000 Pennsylvania Education Development Authority, (Series B) Weekly VRDNs (Payne Printing Co.)/ (PNC Bank, N.A. LOC) A-1 500,000 ------------------------------------------------------ 1,300,000 Pennsylvania Education Development Authority, Revenue Bonds (Series G4) Weekly VRDNs (Metamora Products)/ (PNC Bank, N.A. LOC) A-1 1,300,000 ------------------------------------------------------ 325,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (DDI Pharmaceuticals, Inc.)/ (PNC Bank, N.A. LOC) A-1 325,000 ------------------------------------------------------ 625,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (RAM Forest Products)/ (PNC Bank, N.A. LOC) A-1 625,000 ------------------------------------------------------ 6,915,000 Pennsylvania Housing Finance Authority, 3.90% TOBs (First National Bank of Chicago LIQ), Optional Tender 4/1/1996 NR(2) 6,915,000 ------------------------------------------------------ 980,000 Pennsylvania Housing Finance Authority, Section 8 Assisted Residential Development Refunding Bonds (Series 1992A) Weekly VRDNs (CGIC INS)/(Citibank NA, New York LIQ) NR(1) 980,000 ------------------------------------------------------ 2,420,000 Pennsylvania Housing Finance Authority, Tender Option Bonds/Single Family Housing (Series O), 4.875% TOBs (Meridian Bank, Reading, PA LIQ), Optional Tender 4/1/1996 NR(2) 2,420,000 ------------------------------------------------------ 3,190,000 Pennsylvania State Higher Education Assistance Agency, 4.50% TOBs (Carnegie-Mellon University), Optional Tender 5/1/1996 A-1 3,190,000 ------------------------------------------------------ 9,405,000 Pennsylvania State Higher Education Facilities Authority, 4.20% TOBs (Carnegie-Mellon University), Optional Tender 11/1/1995 A-1 9,405,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 1,945,000 Pennsylvania State Higher Education Facilities Authority, College & University Revenues/Drexel University, 7.70% Bonds (United States Treasury PRF), 11/1/1995 (@102) Aaa $ 1,983,900 ------------------------------------------------------ 3,100,000 Pennsylvania State University, Series 1995 Notes, 5.25% BANs, 4/5/1996 MIG1 3,110,758 ------------------------------------------------------ 9,000,000 Philadelphia Redevelopment Authority, Multi-Family Revenue Bonds (Series 1985) Weekly VRDNs (Franklin Town Towers)/(Marine Midland Bank N.A., Buffalo, NY LOC) P-2 9,000,000 ------------------------------------------------------ 7,440,000 Philadelphia, PA IDA, (Series 93) Weekly VRDNs (Sackett Development)/(Mellon Bank NA, Pittsburgh LOC) A1 7,440,000 ------------------------------------------------------ 7,000,000 Philadelphia, PA IDA, 4.25% TOBs (Suite Hotel)/(First National Bank of Boston, MA LOC), Optional Tender 6/1/1996 P-1 7,000,000 ------------------------------------------------------ 3,700,000 Philadelphia, PA IDA, Commercial Development Revenue Bonds (Series A), 4.00% TOBs (Economy Inn)/ (First National Bank of Boston, MA LOC), Optional Tender 7/1/1996 P-1 3,700,000 ------------------------------------------------------ 1,700,000 Philadelphia, PA IDA, Commercial Development Revenue Bonds (Series B), 4.00% TOBs (Economy Inn)/(First National Bank of Boston, MA LOC), Optional Tender 7/1/1996 A-2 1,700,000 ------------------------------------------------------ 5,500,000 Philadelphia, PA, (Series A), 4.50% TRANs, 6/27/1996 SP-1 5,517,306 ------------------------------------------------------ 4,000,000 Philadelphia, PA, GO (Series 1990), 3.85% CP (Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender 11/16/1995 VMIG1 4,000,000 ------------------------------------------------------ 4,010,000 Philadelphia, PA, GO (Series 1990), 4.00% CP (Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender 11/6/1995 Aa3 4,010,000 ------------------------------------------------------ 5,000,000 Port Authority of Allegheny County, PA, (Series 1995A), 3.875% GANs (PNC Bank, N.A. LOC), 6/28/1996 NR(3) 5,000,000 ------------------------------------------------------ 2,320,000 Sayre, PA, Health Care Facilities Authority Weekly VRDNs (VHA of Pennsylvania)/(AMBAC INS)/(First National Bank of Chicago LIQ) A-1 2,320,000 ------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PENNSYLVANIA--CONTINUED ------------------------------------------------------ $ 4,000,000 Temple University, Commonwealth System of Higher Education University Funding Obligations (Series 1995), 5.00% BANs, 5/22/1996 SP-1+ $ 4,014,883 ------------------------------------------------------ 3,824,000 Upper Darby School District, PA, 4.13% TRANs, 6/28/1996 NR(3) 3,825,432 ------------------------------------------------------ 1,550,000 Venango, PA IDA, (Series A), 3.95% CP (Scrubgrass Power Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/10/1996 A-1+ 1,550,000 ------------------------------------------------------ 4,000,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.80% CP (Scrubgrass Power Corp.)/ (National Westminster Bank, PLC, London LOC), Mandatory Tender 11/13/1995 A-1+ 4,000,000 ------------------------------------------------------ 2,100,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.95% CP (Scrubgrass Power Corp.)/ (National Westminster Bank, PLC, London LOC), Mandatory Tender 1/26/1996 A-1+ 2,100,000 ------------------------------------------------------ 870,000 Washington County, PA Hospital Authority, (Series 1990) Weekly VRDNs (Mac Plastics, Inc.)/(National City Bank, Cleveland, OH LOC) AA 870,000 ------------------------------------------------------ 5,700,000 Washington County, PA Municipal Authority Facilities, (Series 1985A) Weekly VRDNs (1985-A Pooled Equipment Lease Program)/(Sanwa Bank Ltd, Osaka LOC) VMIG1 5,700,000 ------------------------------------------------------ 1,350,000 Washington County, PA, IDA (Series 1988) Weekly VRDNs (Coca-Cola Co.)/(Mellon Bank NA, Pittsburgh LOC) P-1 1,350,000 ------------------------------------------------------ 1,100,000 West Cornwall Township, PA Municipal Authority, Revenue Bonds (Series 1995) Weekly VRDNs (Lebanon Valley Brethern Home Project (PA))/(Meridian Bank, Reading, PA LOC) P-1 1,100,000 ------------------------------------------------------ 1,418,000 West York Area School District, PA, Tax & Revenue Anticipation Notes (Series 1995), 4.26% TRANs, 6/28/1996 NR(3) 1,418,711 ------------------------------------------------------ 2,588,850 Woodland Hills School District, PA, 4.21% TRANs, 6/28/1996 NR 2,589,819 ------------------------------------------------------ ------------ Total 304,856,354 ------------------------------------------------------ ------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------ ---------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ PUERTO RICO--0.2% ------------------------------------------------------ $ 600,000 Puerto Rico Government Development Bank Weekly VRDNs (Credit Suisse, Zurich LOC) A-1+ $ 600,000 ------------------------------------------------------ ------------ TOTAL INVESTMENTS, AT AMORTIZED COST(A) $305,456,354 ------------------------------------------------------ ------------
Securities that are subject to the Alternative Minimum Tax represent 56.5% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($307,191,765) at October 31, 1995. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronym(s) are used throughout this portfolio: AMBAC -- American Municipal Bond Assurance Corporation BANs -- Bond Anticipation Notes CGIC -- Capital Guaranty Insurance Corporation CP -- Commercial Paper GANs -- Grant Anticipation Notes GO -- General Obligation HDA -- Hospital Development Authority IDA -- Industrial Development Authority IDRB -- Industrial Development Revenue Bond INS -- Insured LIQ -- Liquidity Agreement LOC -- Letter of Credit PCR -- Pollution Control Revenue PLC -- Public Limited Company PRF -- Prerefunded RANs -- Revenue Anticipation Notes TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds TRANs -- Tax and Revenue Anticipation Notes VHA -- Veterans Housing Administration VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Investments in securities, at amortized cost and value $305,456,354 - ------------------------------------------------------------------------------- Cash 302,320 - ------------------------------------------------------------------------------- Income receivable 2,170,862 - ------------------------------------------------------------------------------- Receivable for shares sold 2,272 - ------------------------------------------------------------------------------- ------------ Total assets 307,931,808 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for shares redeemed 1,505 - -------------------------------------------------------------------- Income distribution payable 634,420 - -------------------------------------------------------------------- Accrued expenses 104,118 - -------------------------------------------------------------------- -------- Total liabilities 740,043 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 307,191,765 shares outstanding $307,191,765 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------- $276,407,484 / 276,407,484 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------ CASH SERIES SHARES: - ------------------------------------------------------------------------------- $28,255,264 / 28,255,264 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------ INSTITUTIONAL SHARES: - ------------------------------------------------------------------------------- $2,529,017 / 2,529,017 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------------- Interest $11,660,838 - --------------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------------- Investment advisory fee $1,445,400 - ----------------------------------------------------------------------- Administrative personnel and services fee 218,834 - ----------------------------------------------------------------------- Custodian fees 54,452 - ----------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 51,317 - ----------------------------------------------------------------------- Directors'/Trustees' fees 1,626 - ----------------------------------------------------------------------- Auditing fees 14,983 - ----------------------------------------------------------------------- Legal fees 3,910 - ----------------------------------------------------------------------- Portfolio accounting fees 67,074 - ----------------------------------------------------------------------- Distribution services fee--Cash Series Shares 96,501 - ----------------------------------------------------------------------- Shareholder services fee--Institutional Service Shares 661,792 - ----------------------------------------------------------------------- Shareholder services fee--Cash Series Shares 60,313 - ----------------------------------------------------------------------- Shareholder services fee--Institutional Shares 596 - ----------------------------------------------------------------------- Share registration costs 42,662 - ----------------------------------------------------------------------- Printing and postage 15,292 - ----------------------------------------------------------------------- Insurance premiums 6,469 - ----------------------------------------------------------------------- Miscellaneous 5,970 - ----------------------------------------------------------------------- ---------- Total expenses 2,747,191 - ----------------------------------------------------------------------- Waivers-- - ----------------------------------------------------------------------- Waiver of investment advisory fee $(222,841) - ----------------------------------------------------------- Waiver of distribution services fee--Cash Series Shares (44,624) - ----------------------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (496,060) - ----------------------------------------------------------- Waiver of shareholder services fee--Cash Series Shares (1,766) - ----------------------------------------------------------- Waiver of shareholder services fee--Institutional Shares (596) - ----------------------------------------------------------- --------- Total waivers (765,887) - ----------------------------------------------------------------------- ---------- Net expenses 1,981,304 - --------------------------------------------------------------------------------------- ----------- Net investment income $ 9,679,534 - --------------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ------------------------------- 1995 1994 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------------- OPERATIONS-- - ------------------------------------------------------------- Net investment income $ 9,679,534 $ 6,997,846 - ------------------------------------------------------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ------------------------------------------------------------- Distributions from net investment income - ------------------------------------------------------------- Institutional Service Shares (8,951,830) (6,625,711) - ------------------------------------------------------------- Cash Series Shares (718,640) (372,135) - ------------------------------------------------------------- Institutional Shares (9,064) 0 - ------------------------------------------------------------- ------------- ------------- Change in net assets resulting from distributions to shareholders (9,679,534) (6,997,846) - ------------------------------------------------------------- ------------- ------------- SHARE TRANSACTIONS-- - ------------------------------------------------------------- Proceeds from sale of shares 1,028,950,579 800,515,592 - ------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,339,163 1,321,124 - ------------------------------------------------------------- Cost of shares redeemed (971,610,388) (891,403,705) - ------------------------------------------------------------- ------------- ------------- Change in net assets resulting from share transactions 59,679,354 (89,566,989) - ------------------------------------------------------------- ------------- ------------- Change in net assets 59,679,354 (89,566,989) - ------------------------------------------------------------- NET ASSETS: - ------------------------------------------------------------- Beginning of period 247,512,411 337,079,400 - ------------------------------------------------------------- ------------- ------------- End of period $ 307,191,765 $ 247,512,411 - ------------------------------------------------------------- ------------- -------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Pennsylvania Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers three classes of shares: Institutional Service Shares, Cash Series Shares and Institutional Shares. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 75.5% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- supported (backed) by a letter of credit for any one institution or agency does not exceed 11.7% of total investments. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1995, capital paid-in aggregated $307,191,765. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, ----------------------------- INSTITUTIONAL SERVICE SHARES 1995 1994 - --------------------------------------------------------------- ------------ ------------ Shares sold 940,400,092 749,671,233 - --------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,631,397 937,173 - --------------------------------------------------------------- Shares redeemed (894,784,261) (839,966,777) - --------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional Service share transactions 47,247,228 (89,358,371) - --------------------------------------------------------------- ------------ ------------
YEAR ENDED OCTOBER 31, ----------------------------- CASH SERIES SHARES 1995 1994 - --------------------------------------------------------------- ------------ ------------ Shares sold 85,377,025 50,844,359 - --------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 705,513 383,951 - --------------------------------------------------------------- Shares redeemed (76,179,429) (51,436,928) - --------------------------------------------------------------- ------------ ------------ Net change resulting from Cash Series share transactions 9,903,109 (208,618) - --------------------------------------------------------------- ------------ ------------
YEAR ENDED OCTOBER 31, ----------------------------- INSTITUTIONAL SHARES 1995(A) 1994 - --------------------------------------------------------------- ------------ ------------ Shares sold 3,173,462 0 - --------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 2,253 0 - --------------------------------------------------------------- Shares redeemed (646,698) 0 - --------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional share transactions 2,529,017 0 - --------------------------------------------------------------- ------------ ------------ Net change resulting from share transactions 59,679,354 (89,566,989) - --------------------------------------------------------------- ------------ ------------
(a) For the period from August 23, 1995 (date of initial public investment) to October 31, 1995. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Cash Series shares. The Plan provides that the Fund may incur distribution expenses up to .40 of 1% of the average daily net assets of the Cash Series Shares, annually to compensate FSC. The distributor may voluntarily choose to waive any portion of its fee. The distributor can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS,") the Fund will pay FSS up to .25 of 1% of average daily net assets of the Fund for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. For the fiscal year ended October 31, 1995, the Institutional Shares fully waived its shareholder services fee. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ also maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- INTERFUND TRANSACTIONS--During the period ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common Officers. These transactions were made at current market value pursuant to Rule 17a-7 under the Act amounting to $488,240,000 and $437,690,000 respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors of the above companies. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Pennsylvania Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Pennsylvania Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights (see pages 2, 15 and 16 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Pennsylvania Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 ADDRESSES - -------------------------------------------------------------------------------- Pennsylvania Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 - ------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - ------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PENNSYLVANIA MUNICIPAL CASH TRUST INSTITUTIONAL SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 CUSIP 314229717 G00214-01-IS (12/95) (LOGO) PENNSYLVANIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH SERIES SHARES INSTITUTIONAL SHARES INSTITUTIONAL SERVICE SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectuses of Pennsylvania Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal Trust ( the "Trust") dated December 31, 1995. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-235-4669. FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 Statement dated December 31, 1995 Federated Securities Corp. Distributor A subsidiary of FEDERATED INVESTORS TABLE OF CONTENTS INVESTMENT POLICIES 1 ACCEPTABLE INVESTMENTS 1 PARTICIPATION INTERESTS 1 MUNICIPAL LEASES 1 RATINGS 1 WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS 1 REPURCHASE AGREEMENTS 2 CREDIT ENHANCEMENT 2 PENNSYLVANIA INVESTMENT RISKS 2 INVESTMENT LIMITATIONS 2 FEDERATED MUNICIPAL TRUST MANAGEMENT 6 THE FUNDS 10 SHARE OWNERSHIP 11 TRUSTEES COMPENSATION 12 TRUSTEE LIABILITY 12 INVESTMENT ADVISORY SERVICES 13 INVESTMENT ADVISER 13 ADVISORY FEES 13 BROKERAGE TRANSACTIONS 13 OTHER SERVICES 14 FUND ADMINISTRATION 14 CUSTODIAN AND PORTFOLIO RECORDKEEPER 14 TRANSFER AGENT 14 INDEPENDENT PUBLIC ACCOUNTANTS 14 DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT 14 DETERMINING NET ASSET VALUE 15 REDEMPTION IN KIND 15 MASSACHUSETTS PARTNERSHIP LAW 15 THE FUND'S TAX STATUS 15 PERFORMANCE INFORMATION 15 YIELD 16 EFFECTIVE YIELD 16 TAX-EQUIVALENT YIELD 16 TAX-EQUIVALENCY TABLE 17 TOTAL RETURN 17 PERFORMANCE COMPARISONS 18 ABOUT FEDERATED INVESTORS 18 MUTUAL FUND MARKET 18 INSTITUTIONAL CLIENTS 18 TRUST ORGANIZATIONS 18 BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES 19 APPENDIX 20 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security, the issuer of any demand feature applicable to the security, or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing participation interests having a seven day demand feature, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Board of Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of non-appropriation"); and any credit enhancement or legal recourse provided upon an event of non- appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1, or 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 rating categories. See "Regulatory Compliance." WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated on the Fund`s records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, brokers/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit-enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the "credit enhancer"), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. PENNSYLVANIA INVESTMENT RISKS The Fund invests in obligations of Pennsylvania (the "Commonwealth") issuers which result in the Fund's performance being subject to risks associated with the overall conditions present within the Commonwealth. The following information is a brief summary of the prevailing economic conditions and general summary of the Commonwealth's financial condition. This information is based on official statements relating to securities that are believed to be reliable but should not be considered as a complete description of all relevant information. Pennsylvania's fiscal operations have greatly improved since the $1.1 billion deficit in 1991. The Commonwealth completed fiscal 1995 with a $540 million surplus, a $204 million increase from the previous year. Of the total 1995 surplus, $111 million was transferred to the Tax Stablization Reserve Fund or "Rainy Day" Fund and $429 million was applied to the fiscal 1996 budgets. The main themes of the 1996 operating budget are business tax cuts and controlled social services spending. In addition, the Governor's budget hopes to build up Pennsylvania's "Rainy Day" Fund to as much as 3% of expenditures in coming years. Pennsylvania's economic base is mature but substantial. However, the Commonwealth's historical over-dependence upon manufacturing and mining continues to leave it vulnerable to cyclical economic trends. Recent data shows improvement in employment diversification, however, employment growth still lags the nation. In addition, population growth, as in many industrial states, has remained motionless. The overall credit quality of the Commonwealth is further demonstrated by its debt ratings. Pennsylvania maintains an A-1 rating by Moody's Investors Service, Inc. that has been in effect since 1986. Standard & Poor's Ratings Group rates the Commonwealth AA - ; this has remained since 1985. The Fund's concentration in securities issued by the Commonwealth and its political subdivisions provides a greater level of risk than a fund whose assets are diversified across numerous states and municipal issuers. The ability of the Commonwealth or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the Commonwealth; and the underlying fiscal condition of the Commonwealth, its counties, and its municipalities. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as are necessary for the clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of the pledge. DIVERSIFICATION OF INVESTMENTS At the close of each quarter of each fiscal year, no more than 25% of the Fund's total assets will be invested in the securities of a single issuer, but, with regard to at least 50% of the Fund's total assets, no more than 5% of the Fund's total assets are to be invested in securities of a single issuer. Under this limitation, each governmental subdivision, including states, territories, possessions of the United States, or their political subdivisions, agencies, authorities, instrumentalities, or similar entities, will be considered a separate issuer if its assets and revenues are separate from those of the government body creating it and the security is backed only by its own assets and revenues. Industrial development bonds backed only by the assets and revenues of a nongovernmental issuer are considered to be issued solely by that issuer. If in the case of an industrial development bond or government-issued security, a governmental or other entity guarantees the security, such guarantee would be considered a separate security issued by the guarantor, as well as the other issuer, subject to limited exclusions allowed by the Investment Company Act of 1940. LENDING CASH OR SECURITIES The Fund will not lend any of its assets except that it may acquire publicly or non publicly issued Pennsylvania municipal securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies and limitations. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. PORTFOLIO TRADING The Fund will invest in securities for income earnings rather than trading for profit. The Fund will not vary its investments, except to: (i) eliminate unsafe investments and investments not consistent with the preservation of the capital or the tax status of the investments of the Fund; (ii) honor redemption orders, meet anticipated redemption requirements, and negate gains from discount purchases; (iii) maintain a constant net asset value per unit pursuant to, and in compliance with, an order or rule of the United States Securities and Exchange Commission; (iv) reinvest the earnings from securities in like securities; or (v) defray normal administrative expenses (the "Pennsylvania Investment Restrictions"). CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above limitations cannot be changed without shareholder approval. The following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities, including repurchase agreements providing for settlement in more than seven days after notice, and certain restricted securities. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers (including companies responsible for paying principal and interest on industrial development bonds) which have records of less than three years of continuous operations, including the operation of any predecessor. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF THE TRUST The Fund will not purchase or retain the securities of any issuer if the Officers and Trustees of the Trust or its investment adviser, owning individually more than .50 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. INVESTING IN MINERALS The Fund will not purchase or sell interests in oil, gas, or other mineral exploration or development programs or leases, although it may purchase the securities of issuers which invest in or sponsor such programs. For purposes of the above limitations, the Fund considers 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 to be "cash items." Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments, as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its ability to participate in volume transactions will be to the benefit of the Fund. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President of the Trust . Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds; formerly, Senior Partner, Ernst & Young LLP. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; President, Northgate Village Development Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Director, Trustee, or Managing General Partner of the Funds; formerly, President, Naples Property Management, Inc. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee, or Managing General Partner of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine and Member, Board of Trustees, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director, Trustee, or Managing General Partner of the Funds. Edward L. Flaherty, Jr.@ Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director, Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson * Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. and Federated Administrative Services. Peter E. Madden Seacliff 562 Bellevue Avenue Newport, RI Birthdate: March 16, 1942 Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, Trustee, or Managing General Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation. Gregor F. Meyer Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General Partner of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director, Trustee or Managing General Partner of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics and Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; founding Chairman, National Advisory Council for Environmental Policy and Technology and Federal Emergency Management Advisory Board. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/marketing consultant; Conference Coordinator, Non-profit entities; Director, Trustee, or Managing General Partner of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative Services, Federated Services Company, and Federated Shareholder Services; 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 of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. David M. Taylor Federated Investors Tower Pittsburgh, PA Birthdate: January 13, 1947 Treasurer Senior Vice President, Controller, and Trustee, Federated Investors; Controller, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., and Passport Research, Ltd.; Senior Vice President, Federated Shareholder Services; Vice President, Federated Administrative Services; Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President and Secretary Executive Vice President, Secretary, General Counsel, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds. * This Trustee is deemed to be an "interested person" as defined in the Investment Company Act of 1940, as amended. @ Member of the 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 As used in the table above, "The Funds" and "Funds" mean the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; 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; 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 U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free Instruments Trust; Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The Virtus Funds; World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees own less than 1% of the Trust`s outstanding shares. As of December 4, 1995, the following shareholder(s) of record owned 5% or more of the outstanding Cash Series Shares of the Fund: BHC Securities, Inc., Philadelphia, Pennsylvania, owned approximately 7,058,388 shares (35.87%). As of December 4, 1995, the following shareholder(s) of record owned 5% or more of the outstanding Institutional Service Shares of the Fund: Meridian Asset Management, Reading, Pennsylvania, owned approximately 30,035,618 shares (10.07%); ACO, Pittsburgh, Pennsylvania, owned approximately 18,367,433 shares (6.16%); Keystone Financial, Inc., Altoona, Pennsylvania, owned approximately 28,420,134 shares (9.53%); Keystone Financial Inc., Altoona, Pennsylvania, owned approximately 28,420,134 shares (9.53%); Anderson & Co., Philadelphia, Pennsylvania, owned approximately 60,494,809 shares (20.28%); Saxon & Co., Philadelphia, Pennsylvania, owned approximately 17,034,070 shares (5.71%); and Mellon Bank Capital Markets, Pittsburgh, Pennsylvania, owned approximately 15,973,393 shares (5.35%). As of December 4, 1995, the following shareholder(s) of record owned 5% or more of the outstanding Institutional Shares of the Fund: B B Securities, Blue Ball, Pennsylvania, Pennsylvania, owned approximately 1,486,153 shares (33.30%); Dickey & Co., Somerset, Pennsylvania, owned approximately 1,036,220 shares (23.22%); Boht & Company, Hanover, Pennsylvania, owned approximately 849,086 shares (19.03%); Kish Bank Asset Management, Reedsville, Pennsylvania, owned approximately 286,622 shares (6.42%); and Douglas J. and Carol S. MacPhail, Jt Wros, Sewickley, Pennsylvania, owned approximately 323, 455 shares (7.25%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID CORPORATION CORPORATION*# FROM FUND COMPLEX + John F. Donahue, $0 $0 for the Fund and Chairman and Director 68 other investment companies in the Fund Complex Thomas G. Bigley,$2,458 $20,688 for the Fund and Director 49 other investment companies in the Fund Complex John T. Conroy, $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex William J. Copeland, $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex James E. Dowd, $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex Lawrence D. Ellis, M.D., $3,266 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex Edward L. Flaherty, Jr., $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex Peter E. Madden, $2,757 $90,563 for the Fund and Director 64 other investment companies in the Fund Complex Gregor F. Meyer, $3,166 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex John E. Murray, Jr., $1,762 $0 for the Fund and Director 64 other investment companies in the Fund Complex Wesley W. Posvar,$3,166 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex Marjorie P. Smuts, $3,166 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1995. #The aggregate compensation is provided for the Trust which is comprised of 15 portfolios. +The information is provided for the last calendar year. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1995, 1994, and 1993, the adviser earned $1,445,400, $1,617,472, and $1,740,351, respectively, of which $222,841, $53,564, and $415,874, respectively, was voluntarily waived. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this 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 fees. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Board of Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Trust and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal years ended October 31, 1995, 1994, and 1993, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc., also a subsidiary of Federated Investors, served as the Fund's Administrator. (For purposes of this Statement of Additional Information, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the "Administrators".) For the fiscal year ended October 31, 1995, the Administrators collectively earned $218,834. For the fiscal years ended October 31, 1994 and 1993, Federated Administrative Services, Inc. earned $274,571 and $338,801. Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, holds approximately 20% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. CUSTODIAN AND PORTFOLIO RECORDKEEPER State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. TRANSFER AGENT As transfer agent, Federated Services Company maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT With respect to Cash Series Shares, the Fund had adopted a Distribution Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange Commission pursuant to the Investment Company Act of 1940. Additionally, the Fund has adopted a Shareholder Service Agreement with respect to Cash Series Shares, Institutional Shares, and Institutional Service Shares. These arrangements permit the payment of fees to financial institutions, the distributor, and Federated Shareholder Services, to stimulate distribution activities and to cause services to be provided to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities 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 Trustees expect Cash Series Shares will be able to achieve a more predictable flow of cash for investment purposes and to meet redemptions. This will facilitate more efficient portfolio management and assist the Fund in 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 year ended October 31, 1995, Cash Series Shares made payments in the amount of $96,501 pursuant to the Distribution Plan, of which $44,624 was voluntarily waived. In addition, for this period, Cash Series Shares paid Shareholder Services fees in the amount of $60,313, of which $1,766 was volutarily waived. For the fiscal period ended October 31, 1995, Institutional Shares paid Shareholder Services fees in the amount of $596 of which $596 was voluntarily waived. For the fiscal period ended October 31, 1995, Institutional Service Shares paid Shareholder Services fees in the amount of $661,792, of which $496,060 was voluntarily waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The Fund calculates its yield based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. For the seven-day period ended October 31, 1995, the yields for Cash Series Shares, Institutional Shares, and Institutional Service Shares were 3.00%, 3.60%, and 3.40%, respectively. EFFECTIVE YIELD The Fund calculates its effective yield by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended October 31, 1995, the effective yields for Cash Series Shares, Institutional Shares, and Institutional Service Shares were 3.04%, 3.66%, and 3.46%, respectively. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal rate for individuals) and assuming that income is 100% exempt. For the seven-day period ended October 31, 1995, the tax-equivalent yields for Cash Series Shares, Institutional Shares, and Institutional Service Shares were 4.99%, 5.96%, and 5.63%, respectively. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a "tax-free" investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1995 STATE OF PENNSYLVANIA COMBINED FEDERAL AND STATE INCOME TAX BRACKET: 17.80% 30.80% 33.80% 38.80% 42.40% JOINT $1- $39,001- $94,251- $143,601- OVER RETURN 39,000 94,250 143,600 256,500 256,500 SINGLE $1- $23,351- $56,550- $117,951- OVER RETURN 23,350 56,550 117,950 256,500 $256,500 TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT 1.50% 1.82% 2.17% 2.27% 2.45% 2.60% 2.00% 2.43% 2.89% 3.02% 3.27% 3.47% 2.50% 3.04% 3.61% 3.78% 4.08% 4.34% 3.00% 3.65% 4.34% 4.53% 4.90% 5.21% 3.50% 4.26% 5.06% 5.29% 5.27% 6.08% 4.00% 4.87% 5.78% 6.04% 6.54% 6.94% 4.50% 5.47% 6.50% 6.80% 7.35% 7.81% 5.00% 6.08% 7.23% 7.55% 8.17% 8.68% 5.50% 6.69% 7.95% 8.31% 8.99% 9.55% 6.00% 7.30% 8.67% 9.06% 9.80% 10.42% NOTE: THE MAXIMUM MARGINAL TAX RATE FOR EACH BRACKET WAS USED IN CALCULATING THE TAXABLE YIELD EQUIVALENT. FURTHERMORE, ADDITIONAL STATE AND LOCAL TAXES PAID ON COMPARABLE TAXABLE INVESTMENTS WERE NOT USED TO INCREASE FEDERAL DEDUCTIONS. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. Cash Series Shares average annual total returns for the one-year period ended October 31, 1995 and for the period from January 25, 1991 (date of initial public investment) through October 31, 1995 were 3.02% and 2.67%, respectively. Institutional Shares cumulative total return for the period from August 23, 1995(date of initial public investment) through October 31, 1995 was 1.03%. Institutional Service Shares average annual total returns for the one-year period ended October 31, 1995 and for the period from November 21, 1989 (date of initial public investment) through October 31, 1995 were 3.44% and 3.56%, respectively PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: O LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. o MONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1994, Federated Investors managed more than $31 billion in assets across approximately 43 money market funds, including 17 government, 8 prime and 18 municipal with assets approximating $17 billion, $7.4 billion and $6.6 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors's equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors's domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors's international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $2 trillion to the more than 5,500 funds available.* Federated Investors Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated Investors funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated Investors mutual funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms-- supported by more wholesalers than any other mutual fund distributor. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity concerns and market access risks unique to notes. SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus sign (+) designation. SP-2 Satisfactory capacity to pay principal and interest. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a variable rate demand feature. The first rating (long-term rating) addresses the likelihood of repayment of principal and interest when due, and the second rating (short-term rating) describes the demand characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. LONG-TERM DEBT RATINGS AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rate "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATINGS Moody's Investor Service, Inc. (Moody's) short-term ratings are designated Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG ratings is to provide investors with a simple system by which the relative investment qualities of short-term obligations may be evaluated. MIG1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad based access to the market for refinancing. MIG2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. In this case, two ratings are usually assigned, (for example, AAA/VMIG-1); the first representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the second representing an evaluation of the degree of risk associated with the demand feature. The VMIG rating can be assigned a 1 or 2 designation using the same definitions described above for the MIG rating. COMMERCIAL PAPER (CP) RATINGS P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well established industries, high rates of return on funds employed, conservative capitalization structure with moderate reliance on debt and ample asset protection, broad margins in earning coverage of fixed financial charges and high internal cash generation, well-established access to a range of financial markets and assured sources of alternate liquidity P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. LONG-TERM DEBT RATINGS AAA Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes is can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in AAA securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. NR Indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P or Moody's with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated A-1 or P-1. NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated "AAA" by S&P or "AAA" by Moody's. NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated "AA" by S&P or "AA" by Moody's. NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated "A" by S&P or Moody's. 314229881 314229717 314229204 MINNESOTA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH SERIES SHARES PROSPECTUS The Cash Series Shares of Minnesota Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Minnesota municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Minnesota, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and the regular personal income taxes imposed by the State of Minnesota consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--CASH SERIES SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Minnesota Municipal Securities 6 Investment Risks 6 Non-Diversification 7 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Cash Series Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 10 - ------------------------------------------------------ Special Purchase Features 11 HOW TO REDEEM SHARES 11 - ------------------------------------------------------ Special Redemption Features 12 ACCOUNT AND SHARE INFORMATION 12 - ------------------------------------------------------ TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 State and Local Taxes 14 OTHER CLASSES OF SHARES 14 - ------------------------------------------------------ PERFORMANCE INFORMATION 15 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 16 - ------------------------------------------------------ FINANCIAL STATEMENTS 17 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 33 - ------------------------------------------------------ ADDRESSES 34 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- CASH SERIES SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)........................................ None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)........................................ None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)...................... None Redemption Fee (as a percentage of amount redeemed, if applicable)........... None Exchange Fee................................................................. None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)............................................. 0.13% 12b-1 Fee (after waiver)(2).................................................. 0.25% Total Other Expenses......................................................... 0.42% Shareholder Services Fee................................................... 0.25% Total Operating Expenses(3)............................................. 0.80%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The maximum 12b-1 fee is 0.50%. (3) The total operating expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1996. The operating expense were 0.70% for the fiscal year ended October 31, 1995 and would have been 1.32% absent the voluntary waivers of a portion of the management fee, a portion of the 12b-1 fee and a portion of the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Cash Series Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ------------------------------------------------------------------------------------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period........ $ 8 $ 26 $ 44 $ 99
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. MINNESOTA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--CASH SERIES SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants, on page 33.
YEAR ENDED OCTOBER 31, -------------------------------------------------- 1995 1994 1993 1992 1991(A) ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------ Net investment income 0.03 0.02 0.02 0.03 0.04 - ------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------ Distributions from net investment income (0.03) (0.02) (0.02) (0.03) (0.04) - ------------------------------------------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------ ------ ------ ------ ------ ------ TOTAL RETURN (B) 3.41% 2.17% 2.02% 2.78% 3.60% - ------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------ Expenses 0.70% 0.71% 0.71% 0.71% 0.64%* - ------------------------------------------ Net investment income 3.37% 2.15% 2.01% 2.75% 4.11%* - ------------------------------------------ Expense waiver/reimbursement (c) 0.62% 0.61% 0.44% 0.44% 0.59%* - ------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------ Net assets, end of period (000 omitted) $131,471 $94,335 $67,521 $75,044 $69,747 - ------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from January 7, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Trustees have established two classes of shares known as Cash Series Shares and Institutional Shares. This prospectus relates only to Cash Series Shares of the Fund, which are designed primarily for retail customers of financial institutions as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term Minnesota municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Minnesota taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the regular personal income taxes imposed by the State of Minnesota consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Minnesota municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, the Fund invests its assets so that (1) at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Minnesota regular personal income tax ("exempt interest dividends"); and (2) at least 95% of the exempt interest dividends that the Fund pays to its shareholders will derive interest income from Minnesota municipal obligations. The remaining 5% of such exempt interest dividends paid to shareholders will derive either from interest income on Minnesota municipal securities or interest income which is exempt from both federal regular and Minnesota regular personal income taxes. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Minnesota and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Minnesota state income tax imposed upon non-corporate taxpayers ("Minnesota Municipal Securities"). Examples of Minnesota Municipal Securities include, but are not limited to: - tax and revenue anticipation notes ("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 debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Minnesota Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Minnesota Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Minnesota Municipal Securities is subject to the federal alternative minimum tax. MINNESOTA MUNICIPAL SECURITIES Minnesota Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Minnesota Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Minnesota Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Minnesota Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Minnesota Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Minnesota Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Minnesota Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Minnesota Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Minnesota Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF CASH SERIES SHARES Federated Securities Corp. is the principal distributor for Cash Series Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"), the distributor may be paid a fee in an amount computed at an annual rate of .50 of 1% of the average daily net assets of Cash Series Shares to finance any activity which is principally intended to result in the sale of Cash Series 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 services or distribution-related 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 Cash Series Shares under the Distribution Plan. In addition, the Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of Cash Series Shares to obtain certain personal services for shareholders and the maintenance of shareholder accounts. Under the Shareholder Services Agreement, Federated Shareholders Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon Cash Series Shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Distribution Plan and Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance will be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS - -------------- ------------------------------------- .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Minnesota Municipal Cash Trust , Cash Series Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to Minnesota Municipal Cash Trust--Cash Series Shares. Please include an account number on the check. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If shares certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings and loan association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the checkwriting program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 4, 1995, Resource Bank & Trust Co., Minneapolis, MN, and Var & Co., St. Paul, MN, owned 25.57% and 49.63%, respectively, of the voting securities of the Fund's Institutional Shares and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Minnesota. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. MINNESOTA TAXES. Under existing Minnesota laws, distributions made by the Fund will be exempt from Minnesota regular personal income taxes provided that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and provided further that 95% of such distributions are derived from interest on obligations issued by the State of Minnesota or any of its political or governmental subdivisions, municipalities, or governmental agencies or instrumentalities. Distributions made by the Fund will also be exempt to the extent that they are derived from interest on federal obligations and are reported federally as dividend income by shareholders. Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to Minnesota regular personal income taxes. Dividends of the Fund are not exempt from Minnesota corporate income taxes. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers another class of shares called Institutional Shares. Institutional Shares are sold at net asset value primarily to financial institutions acting in a fiduciary capacity and are subject to a minimum initial investment of $25,000 over a 90-day period. All classes are subject to certain of the same expenses. Institutional Shares are distributed with no 12b-1 fees but are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-235-4669. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield for shares. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the shares' tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. MINNESOTA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 33.
YEAR ENDED OCTOBER 31, ------------------------------------------------------------------- 1995 1994 1993 1992 1991 1990(A) ------ ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------- Net investment income 0.04 0.03 0.02 0.03 0.05 0.01 - -------------------------------------- LESS DISTRIBUTIONS - -------------------------------------- Distributions from net investment income (0.04) (0.03) (0.02) (0.03) (0.05) (0.01) - -------------------------------------- ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------- ------ ------ ------ ------ ------ ------ TOTAL RETURN (B) 3.82% 2.58% 2.43% 3.19% 4.89% 0.90% - -------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------- Expenses 0.30% 0.31% 0.31% 0.31% 0.30% 0.01%* - -------------------------------------- Net investment income 3.77% 2.55% 2.40% 3.10% 4.73% 6.45%* - -------------------------------------- Expense waiver/reimbursement (c) 0.52% 0.34% 0.34% 0.33% 0.43% 0.69%* - -------------------------------------- SUPPLEMENTAL DATA - -------------------------------------- Net assets, end of period (000 omitted) $212,392 $159,704 $165,865 $245,168 $124,603 $75,904 - --------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from September 10, 1990 (date of initial public investment) to October 31, 1990. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ----- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--99.3% - ------------------------------------------------------------------------- MINNESOTA--99.0% ------------------------------------------------------- $ 6,750,000 Anoka City, MN Solid Waste Disposal Authority, 3.85% CP (United Power Associates)/(National Rural Utilities Cooperative Finance Corp. GTD), Mandatory Tender 11/10/1995 VMIG1 $ 6,750,000 ------------------------------------------------------- 2,050,000 Anoka, MN, Multifamily Housing Revenue Bonds Weekly VRDNs (Walker Plaza Project)/(First Bank NA, Minneapolis LOC) A-1 2,050,000 ------------------------------------------------------- 3,880,000 Apple Valley, MN, IDRB (Series 1995) Weekly VRDNs (AV Development Company Project)/(Firstar Bank, Minnesota LOC) A-1 3,880,000 ------------------------------------------------------- 2,800,000 Baudette, MN, IDR (Series 1989) Weekly VRDNs (Reid Powell, Inc.)/(Nationsbank of Georgia, N.A. LOC) P-1 2,800,000 ------------------------------------------------------- 2,000,000 Becker, MN, PCR (Series 1993-B), 3.75% CP (Northern States Power Co.), Mandatory Tender 1/25/1996 VMIG1 2,000,000 ------------------------------------------------------- 4,500,000 Becker, MN, PCR (Series 1993A & B), 3.80% CP (Northern States Power Co.), Mandatory Tender 11/21/1995 VMIG1 4,500,000 ------------------------------------------------------- 4,000,000 Becker, MN, PCR (Series 1993A & B), 3.80% CP (Northern States Power Co.), Mandatory Tender 11/22/1995 VMIG1 4,000,000 ------------------------------------------------------- 1,000,000 Bloomington, MN Port Authority, Special Tax Revenue Refunding Bonds (Series 1994B) Weekly VRDNs (Mall of America)/(FSA INS)/(Credit Local de France LIQ) A-1+ 1,000,000 ------------------------------------------------------- 3,600,000 Bloomington, MN, IDRB (Series 1995) Weekly VRDNs (Now Technologies, Inc. Project)/(Norwest Bank Minnesota, Minneapolis LOC) A-1+ 3,600,000 ------------------------------------------------------- 5,000,000 Bloomington, MN, Multi-Family Housing Weekly VRDNs (Crowl Bloomington Apartments)/(Citibank NA, New York LOC) P-1 5,000,000 ------------------------------------------------------- 3,490,000 Brooklyn Center, MN, ISD #286, 4.70% TANs (Minnesota State GTD), 3/27/1996 NR(2) 3,491,332 -------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ----- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------- $ 8,080,000 Burnsville, MN, Multi-Family Housing Weekly VRDNs (Berkshire of Burnsville)/(Sumitomo Bank Ltd., Osaka LOC) A-1 $ 8,080,000 ------------------------------------------------------- 1,270,000 Chaska, MN IDA Weekly VRDNs (Laeration Industries)/ (Norwest Bank Minnesota, Minneapolis LOC) A-1+ 1,270,000 ------------------------------------------------------- 1,900,000 Coon Rapids, MN Hospital Authority, (Series 1985) Weekly VRDNs (Health Central System)/(First Bank NA, Minneapolis LOC) A-1 1,900,000 ------------------------------------------------------- 1,065,000 Crosby-Ironton, MN Independent School District No. 182, GO Tax Anticipation Certificates of Indebtedness (Series 1995A), 4.75% TANs (Minnesota State GTD), 3/22/1996 NR(2) 1,065,194 ------------------------------------------------------- 5,500,000 Crystal, MN IDA Weekly VRDNs (Crystal Gallery Mall, MN)/(Citibank NA, New York LOC) P-1 5,500,000 ------------------------------------------------------- 10,745,000 Dakota County & Washington County MN Housing & Redevelopment Authority, Bloomington Mortgage Revenue, 5.75% TOBs (GNMA COL)/(Meridan Bank, Reading, PA LIQ), Optional Tender 9/1/1996 NR(1) 10,896,281 ------------------------------------------------------- 1,835,000 Dakota County, MN Housing & Redevelopment Authority, (Custodial Receipts), 5.10% TOBs (GNMA COL)/(Meridian Bank, Reading, PA LIQ), Optional Tender 3/1/1996 NR(1) 1,835,000 ------------------------------------------------------- 3,000,000 Dakota County, Washington County & Anoka City, MN Housing & Redevelopment Authority, (Custodial Receipts)/(Series 1988), 4.35% TOBs (United States Treasury COL)/(Meridian Bank, Reading, PA LIQ), Optional Tender 11/1/1995 NR(1) 3,000,000 ------------------------------------------------------- 4,785,000 Duluth, MN, GO Certificate of Indebtedness (Series 1995), 5.00% TANs, 12/29/1995 NR(3) 4,785,874 ------------------------------------------------------- 8,000,000 Eagan, MN, Multi-Family Housing (Series 1992A) Weekly VRDNs (Cinnamon Ridge)/(Mellon Bank NA, Pittsburgh LOC) VMIG1 8,000,000 -------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ----- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------- $ 870,000 Eden Prairie, MN IDA, #194 Weekly VRDNs (Richard W. Cohen Project)/(Norwest Bank Minnesota, Minneapolis LOC) P-1 $ 870,000 ------------------------------------------------------- 138,004 Eden Prairie, MN IDA, (Series 1987) Weekly VRDNs (Minnesota Supply Co.)/(Norwest Bank Minnesota, Minneapolis LOC) P-1 138,004 ------------------------------------------------------- 1,200,000 Elk River, MN Weekly VRDNs (Tescom Project)/(Norwest Bank Minnesota, Minneapolis LOC) P-1 1,200,000 ------------------------------------------------------- 5,000,000 Faribault, MN IDA, (Series 1988) Weekly VRDNs (Jerome Foods)/(Norwest Bank Minnesota, Minneapolis LOC) P-1 5,000,000 ------------------------------------------------------- 1,000,000 Hennepin Co. MN, (Series 1995C) Weekly VRDNs (Hennepin Co. MN GTD) NR(1) 1,000,000 ------------------------------------------------------- 2,500,000 Hubbard County, MN, Solid Waste Disposal (Series 1990) Weekly VRDNs (Potlatch Corp.)/(Credit Suisse, Zurich LOC) A-1+ 2,500,000 ------------------------------------------------------- 4,000,000 Maple Grove, MN IDA, (Series 1991A) Weekly VRDNs (Eagle Ridge, MN Apartments)/(Sumitomo Bank Ltd., Osaka LOC) A-1 4,000,000 ------------------------------------------------------- 3,000,000 Maple Grove, MN IDA, (Series 1991B) Weekly VRDNs (Eagle Ridge, MN Apartments)/(First Bank NA, Minneapolis LOC) A-1 3,000,000 ------------------------------------------------------- 2,025,000 Maplewood, MN, Multi-Family Housing (Series 1993) Weekly VRDNs (Silver Ridge Project)/(Federal Home Loan Bank of Chicago LOC) A-1+ 2,025,000 ------------------------------------------------------- 2,640,000 Mendota Heights, MN, Multi-Family Revenue Bonds Weekly VRDNs (Lexington Heights Apartments)/ (Sumitomo Bank Ltd., Osaka LOC) A-1 2,640,000 ------------------------------------------------------- 1,000,000 Metropolitan Council, MN, Minneapolis-St. Paul Metropolitan Area (Series B), 5.50% Bonds, 12/1/1995 NR(1) 1,000,832 ------------------------------------------------------- 5,000,000 Minneapolis Special School District, MN, GO Tax Anticipation Certificate of Indebtedness Independent School District No 1, 5.75% TANs, 1/25/1996 SP-1+ 5,007,196 -------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ----- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------- $ 715,000 Minneapolis, MN IDA Weekly VRDNs (JTJ Co.)/(First Bank NA, Minneapolis LOC) P-1 $ 715,000 ------------------------------------------------------- 1,400,000 Minneapolis, MN, (Series 1989) Weekly VRDNs (Mt. Sinai Medical Building Association)/(Norwest Bank Minnesota, Minneapolis LOC) A-1+ 1,400,000 ------------------------------------------------------- 7,000,000 Minneapolis, MN, (Series 1995B) Weekly VRDNs VMIG1 7,000,000 ------------------------------------------------------- 3,000,000 Minneapolis, MN, GO Bonds (Series 1995) Weekly VRDNs (Arena Acquisition Project (MN)) A-1+ 3,000,000 ------------------------------------------------------- 3,870,000 Minneapolis, MN, Rental Housing Revenue Bonds (Series 1994A), 5.40% TOBs (Driftwood Apartments Project)/(First Bank NA, Minneapolis LOC), Mandatory Tender 11/1/1995 A-1 3,870,000 ------------------------------------------------------- 4,800,000 (a) Minneapolis/St. Paul MN Housing Finance Board, SFM Revenue Bonds, Merlots (Series D), 4.375% TOBs (GNMA COL)/(Meridan Bank, Reading, PA LIQ), Optional Tender 4/1/1996 NR(1) 4,800,000 ------------------------------------------------------- 1,276,000 Minneapolis/St. Paul MN Housing Finance Board, Single Family Mortgage Revenue Bonds, 4.625% TOBs (GNMA COL)/(Meridian Bank, Reading, PA LIQ), Optional Tender 11/1/1995 NR(1) 1,276,000 ------------------------------------------------------- 8,000,000 Minnesota State Commissioner of Iron Range Resources & Rehabilitation, (Series 1991) Weekly VRDNs (Louisiana- Pacific Corp.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) P-1 8,000,000 ------------------------------------------------------- 5,000,000 Minnesota State HFA, Single Family Mortgage Bonds (Series V), 4.95% TOBs (Bayerische Landesbank Girozentrale LOC), Mandatory Tender 12/14/1995 A-1+ 5,000,000 ------------------------------------------------------- 3,800,000 Minnesota State Higher Education Coordinating Board, (Series 1992A) Weekly VRDNs (First Bank NA, Minneapolis LIQ) VMIG1 3,800,000 ------------------------------------------------------- 7,000,000 Minnesota State Higher Education Coordinating Board, 1992 (Series B) Weekly VRDNs (First Bank NA, Minneapolis LIQ) VMIG1 7,000,000 -------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ----- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------- $ 6,500,000 Minnesota State Higher Education Coordinating Board, 1992 (Series C) Weekly VRDNs (First Bank NA, Minneapolis LIQ) VMIG1 $ 6,500,000 ------------------------------------------------------- 12,700,000 Minnesota State Higher Education Coordinating Board, 1992 (Series C) Weekly VRDNs (First Bank NA, Minneapolis LIQ) VMIG1 12,700,000 ------------------------------------------------------- 3,400,000 Minnesota State Higher Education Coordinating Board, Supplemental Student Loan Program Variable Rate Refunding Revenue Bonds (Series 1994A) Weekly VRDNs (Norwest Bank Minnesota, Minneapolis LIQ) VMIG1 3,400,000 ------------------------------------------------------- 4,300,000 Minnesota State Higher Education Facility Authority Weekly VRDNs (Carlton College)/(Swiss Bank Corp., Basle LOC) VMIG1 4,300,000 ------------------------------------------------------- 5,925,000 Minnesota State, 7.00% Bonds (United States Treasury PRF), 8/1/1996 (@100) NR(1) 6,069,103 ------------------------------------------------------- 11,000,000 Minnesota Tax and Aid Anticipation Borrowing Program, (Series 1995A), 4.25% TANs (Minnesota State GTD), 8/23/1996 NR(2) 11,025,570 ------------------------------------------------------- 7,300,000 Minnesota Tax and Aid Anticipation Borrowing Program, Certificates of Participation, Aid Anticipation Series 1995B, 4.30% TRANs (Minnesota State GTD), 9/13/1996 NR(2) 7,318,174 ------------------------------------------------------- 9,800,000 Minnetonka, MN, Multi-Family Housing Revenue Bonds Weekly VRDNs (The Cliffs at Ridgedale)/(Citibank NA, New York LOC) A-1 9,800,000 ------------------------------------------------------- 5,900,000 Minnetonka, MN, Multifamily Housing Revenue Refunding Bonds (Series 1995) Weekly VRDNs (Southampton Apartments Project (MN))/(National Bank of Canada, Montreal LOC) P-1 5,900,000 ------------------------------------------------------- 1,300,000 New Brighton, MN, IDR Weekly VRDNs (Unicare Homes, Inc.)/(Banque Paribas, Paris LOC) A-1 1,300,000 -------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ----- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------- $ 1,000,000 New Hope, MN IDRB, (Series 1994) Weekly VRDNs (Gaines and Hanson Printing Co.)/(Norwest Bank Minnesota, Minneapolis LOC) A-1+ $ 1,000,000 ------------------------------------------------------- 3,825,000 New Hope, MN Weekly VRDNs (Paddock Labs)/ (Norwest Bank Minnesota, Minneapolis LOC) P-1 3,825,000 ------------------------------------------------------- 2,580,000 Olmsted County, MN Building Authority, Certificates of Participation Weekly VRDNs (Human Services Infrastructure)/(Sanwa Bank Ltd, Osaka LOC) A-1+ 2,580,000 ------------------------------------------------------- 2,600,000 Perham, MN IDA Weekly VRDNs (Land O' Lakes, Inc.)/ (Rabobank Nederland, Utrecht LOC) A-1+ 2,600,000 ------------------------------------------------------- 1,365,000 Plymouth, MN Weekly VRDNs (Nuaire, Inc.)/ (Norwest Bank Minnesota, Minneapolis LOC) P-1 1,365,000 ------------------------------------------------------- 5,000,000 Plymouth, MN, IDRB (Series 1994) Weekly VRDNs (Olympic Steel, Inc.)/(National City Bank, Cleveland, OH LOC) P-1 5,000,000 ------------------------------------------------------- 1,690,000 Port of Austin, MN Weekly VRDNs (Mower House Color)/(Norwest Bank Minnesota, Minneapolis LOC) P-1 1,690,000 ------------------------------------------------------- 6,500,000 Rochester, MN Health Care Facility Authority Weekly VRDNs (Mayo Foundation) VMIG1 6,500,000 ------------------------------------------------------- 4,000,000 Rochester, MN Health Care Facility Authority Weekly VRDNs (Mayo Foundation) VMIG1 4,000,000 ------------------------------------------------------- 2,000,000 Rochester, MN Health Care Facility Authority, (Series C), 3.70% CP (Mayo Foundation), Mandatory Tender 11/16/1995 VMIG1 2,000,000 ------------------------------------------------------- 1,250,000 Rogers, MN IDA Weekly VRDNs (Metal Sales Manufacturing Corp.)/(Society National Bank, Cleveland, OH LOC) P-1 1,250,000 ------------------------------------------------------- 2,925,000 Rogers, MN IDA, Variable Rate Demand IDRB Weekly VRDNs (DAC Development, LLC Project)/(Norwest Bank Minnesota, Minneapolis LOC) A-1+ 2,925,000 -------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ----- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------- $ 8,000,000 Shakopee, MN Hospital Finance Authority Weekly VRDNs (St. Francis Regional Medical Center)/(Citibank NA, New York LOC) A-1 $ 8,000,000 ------------------------------------------------------- 2,000,000 Southern Minnesota Municipal Power Agency, 9.50% Bonds (United States Treasury PRF), 1/1/1996 NR(1) 2,055,531 ------------------------------------------------------- 7,000,000 St. Cloud, MN Hospital Facility Authority, (Series 1990A) Weekly VRDNs (St. Cloud Hospital)/(Kredietbank N.V., Brussels LOC) A-1+ 7,000,000 ------------------------------------------------------- 1,735,000 St. Cloud, MN Housing & Redevelopment Authority, Revenue Refunding Bonds (Series 1994A) Weekly VRDNs (Coborn's Incorporated Project)/(Norwest Bank Minnesota, Minneapolis LOC) A-1+ 1,735,000 ------------------------------------------------------- 3,000,000 St. Cloud, MN Housing & Redevelopment Authority, Revenue Refunding Bonds (Series 1994B) Weekly VRDNs (Coborn's Incorporated Project)/(Norwest Bank Minnesota, Minneapolis LOC) A-1+ 3,000,000 ------------------------------------------------------- 250,000 St. Louis Park Hennepin County, MN, GO (Series 1987C) Weekly VRDNs (Bayerische Vereinsbank AG, Munich LOC) VMIG1 250,000 ------------------------------------------------------- 5,000,000 St. Paul, MN Housing & Redevelopment Authority Weekly VRDNs (District Cooling St. Paul, Inc.)/ (Credit Local de France LOC) A-1+ 5,000,000 ------------------------------------------------------- 500,000 St. Paul, MN Housing & Redevelopment Authority Weekly VRDNs (United Way)/(First Bank NA, Minneapolis LOC) A-1 500,000 ------------------------------------------------------- 2,350,000 St. Paul, MN Housing & Redevelopment Authority, (Series 1994) Weekly VRDNs (Minnesota Children's Museum)/(First Bank NA, Minneapolis LOC) A-1 2,350,000 ------------------------------------------------------- 2,000,000 St. Paul, MN Housing & Redevelopment Authority, District Cooling Revenue Bonds (1995 Series I) Weekly VRDNs (Credit Local de France LOC) P-1 2,000,000 ------------------------------------------------------- 7,250,000 St. Paul, MN Independent School District No. 625, (Series A), 5.375% TANs, 3/28/1996 MIG1 7,281,855 -------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ----- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------- $ 4,600,000 St. Paul, MN Port Authority, (Series 1991) Weekly VRDNs (West Gate Office)/(First Bank NA, Minneapolis LOC) A-1 $ 4,600,000 ------------------------------------------------------- 1,850,000 St. Peter, MN Independent School District #508, Aid Anticipation Certificates of Indebtedness, 3.96% BANs (Minnesota State GTD), 8/29/1996 NR(2) 1,850,427 ------------------------------------------------------- 1,000,000 Steele County, MN, IDRB (Series 1994) Weekly VRDNs (Blount, Inc.)/(Nationsbank of Georgia, N.A. LOC) A-1 1,000,000 ------------------------------------------------------- 6,500,000 University of Minnesota, (Series F), 3.65% TOBs (Regents of University of Minnesota), Optional Tender 2/1/1996 A-1+ 6,500,000 ------------------------------------------------------- 13,015,000 Washington County, MN Housing & Redevelopment Authority, (Series 90) Weekly VRDNs (Granada Pond Apartments)/(Sumitomo Bank Ltd., Osaka LOC) A-1 13,015,000 ------------------------------------------------------- 1,490,000 Wells, MN, 5.00% TOBs (Stokely, Inc.)/(NBD Bank, NA, Indianapolis LOC), Optional Tender 12/1/1995 A-1+ 1,490,000 ------------------------------------------------------- 3,000,000 White Bear Lake, MN, (Series 1993) Weekly VRDNs (Taylor Corp.)/(Norwest Bank Minnesota, Minneapolis LOC) A-1+ 3,000,000 ------------------------------------------------------- 5,180,000 White Bear, MN Weekly VRDNs (Thermoform Plastic, Inc.)/(Norwest Bank Minnesota, Minneapolis LOC) A-1+ 5,180,000 ------------------------------------------------------- 2,000,000 Winsted, MN IDA Weekly VRDNs (Sterner Lighting Systems)/(Fleet National Bank, Providence, R.I. LOC) A-1 2,000,000 ------------------------------------------------------- ------------ Total 340,501,373 ------------------------------------------------------- ------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ----- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------- PUERTO RICO--0.3% ------------------------------------------------------- $ 1,000,000 Puerto Rico Government Development Bank Weekly VRDNs (Credit Suisse, Zurich LOC) A-1+ $ 1,000,000 ------------------------------------------------------- ------------ TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $341,501,373 ------------------------------------------------------- ------------
Securities that are subject to Alternative Minimum Tax represent 35.3% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Denotes a restricted security which is subject to restrictions on resale, under Federal Securities laws. This security has been determined to be liquid under criteria established by the Board of Trustees. At the end of the period, this security amounted to $4,800,000 which represents 1.4% of net assets. (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($343,863,341) at October 31, 1995. The following acronyms are used throughout this portfolio: BANs -- Bond Anticipation Notes COL -- Collateralized CP -- Commercial Paper FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association GO -- General Obligation GTD -- Guaranty HFA -- Housing Finance Authority IDA -- Industrial Development Authority IDR -- Industrial Development Revenue IDRB -- Industrial Development Revenue Bonds INS -- Insured ISD -- Independent School District LIQ -- Liquidity Agreement LOC -- Letter of Credit PCR -- Pollution Control Revenue PRF -- Prerefunded SFM -- Single Family Mortgage TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds TRANs -- Tax and Revenue Anticipation Notes VRDNs -- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $341,501,373 - ------------------------------------------------------------------------------- Cash 780,299 - ------------------------------------------------------------------------------- Income receivable 2,441,223 - ------------------------------------------------------------------------------- Deferred expenses 2,452 - ------------------------------------------------------------------------------- ------------ Total assets 344,725,347 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for shares redeemed $ 75,028 - -------------------------------------------------------------------- Income distribution payable 656,222 - -------------------------------------------------------------------- Accrued expenses 130,756 - -------------------------------------------------------------------- -------- Total liabilities 862,006 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 343,863,341 shares outstanding $343,863,341 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------- INSTITUTIONAL SHARES: - ------------------------------------------------------------------------------- ($212,391,871 / 212,391,871 shares outstanding) $1.00 - ------------------------------------------------------------------------------- ------------ CASH SERIES SHARES: - ------------------------------------------------------------------------------- ($131,471,470 / 131,471,470 shares outstanding) $1.00 - ------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------- Interest $13,813,482 - ---------------------------------------------------------------------------------- EXPENSES: - ---------------------------------------------------------------------------------- Investment advisory fee $1,357,870 - --------------------------------------------------------------------- Administrative personnel and services fee 256,977 - --------------------------------------------------------------------- Custodian fees 69,238 - --------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 98,154 - --------------------------------------------------------------------- Directors'/Trustees' fees 4,382 - --------------------------------------------------------------------- Auditing fees 14,885 - --------------------------------------------------------------------- Legal fees 3,834 - --------------------------------------------------------------------- Portfolio accounting fees 66,897 - --------------------------------------------------------------------- Distribution services fee--Cash Series Shares 599,206 - --------------------------------------------------------------------- Shareholder services fee--Institutional Shares 549,269 - --------------------------------------------------------------------- Shareholder services fee--Cash Series Shares 299,603 - --------------------------------------------------------------------- Share registration costs 29,486 - --------------------------------------------------------------------- Printing and postage 23,165 - --------------------------------------------------------------------- Insurance premiums 8,171 - --------------------------------------------------------------------- Miscellaneous 4,686 - --------------------------------------------------------------------- ---------- Total expenses 3,385,823 - --------------------------------------------------------------------- Waivers-- - --------------------------------------------------------------------- Waiver of investment advisory fee $(906,031) - ---------------------------------------------------------- Waiver of distribution services fee--Cash Series Shares (407,672) - ---------------------------------------------------------- Waiver of shareholder services fee--Institutional Shares (549,269) - ---------------------------------------------------------- Waiver of shareholder services fee--Cash Series Shares (11,773) - ---------------------------------------------------------- --------- Total waivers (1,874,745) - --------------------------------------------------------------------- ---------- Net expenses 1,511,078 - ---------------------------------------------------------------------------------- ----------- Net investment income $12,302,404 - ---------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ------------------------------ 1995 1994 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - --------------------------------------------------------------- OPERATIONS-- - --------------------------------------------------------------- Net investment income $ 12,302,404 $ 6,226,990 - --------------------------------------------------------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS-- - --------------------------------------------------------------- Distributions from net investment income - --------------------------------------------------------------- Institutional Shares (8,269,227) (4,475,720) - --------------------------------------------------------------- Cash Series Shares (4,033,177) (1,751,270) - --------------------------------------------------------------- ------------- ------------- Change in net assets resulting from distributions to shareholders (12,302,404) (6,226,990) - --------------------------------------------------------------- ------------- ------------- SHARE TRANSACTIONS-- - --------------------------------------------------------------- Proceeds from sale of shares 1,040,754,759 931,933,710 - --------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 4,384,166 1,945,475 - --------------------------------------------------------------- Cost of shares redeemed (955,314,263) (913,227,051) - --------------------------------------------------------------- ------------- ------------- Change in net assets resulting from share transactions 89,824,662 20,652,134 - --------------------------------------------------------------- ------------- ------------- Change in net assets 89,824,662 20,652,134 - --------------------------------------------------------------- NET ASSETS: - --------------------------------------------------------------- Beginning of period 254,038,679 233,386,545 - --------------------------------------------------------------- ------------- ------------- End of period $ 343,863,341 $ 254,038,679 - --------------------------------------------------------------- ------------- -------------
(See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Minnesota Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers two classes of shares: Institutional Shares and Cash Series Shares. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 73.4% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or MINNESOTA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- supported (backed) by a letter of credit for any one institution or agency does not exceed 10.9% of total investments. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. In some cases, the issuer of restricted securities has agreed to register such securities for resale, at the issuer's expense either upon demand by the Fund or in connection with another registered offering of the securities. Many restricted securities may be resold in the secondary market in transactions exempt from registration. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined by the Fund's pricing committee. Additional information on each restricted security held at October 31, 1995 is as follows:
FUND SECURITY ACQUISITION DATE ACQUISITION COST --------------------------------------- ----------------- ----------------- Minneapolis/St. Paul MN Housing Finance Board, SFM Revenue Bonds, Merlots (Series D) 10/5/95 4,800,000
OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1995, capital paid-in aggregated $343,863,341. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, ----------------------------- INSTITUTIONAL SHARES 1995 1994 - --------------------------------------------------------------- ------------ ------------ Shares sold 546,893,719 554,305,186 - --------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 425,031 266,557 - --------------------------------------------------------------- Shares redeemed (494,630,825) (560,732,943) - --------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional share transactions 52,687,925 (6,161,200) - --------------------------------------------------------------- ------------ ------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ----------------------------- CASH SERIES SHARES 1995 1994 - --------------------------------------------------------------- ------------ ------------ Shares sold 493,861,040 377,628,524 - --------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 3,959,135 1,678,918 - --------------------------------------------------------------- Shares redeemed (460,683,438) (352,494,108) - --------------------------------------------------------------- ------------ ------------ Net change resulting from Cash Series share transactions 37,136,737 26,813,334 - --------------------------------------------------------------- ------------ ------------ Net change resulting from share transactions 89,824,662 20,652,134 - --------------------------------------------------------------- ------------ ------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the daily net assets of the Fund to finance activities intended to result in the sale of the Fund's Cash Series Shares. The Plan provides that the Fund may incur distribution expenses up to .50 of 1% of the average daily net assets of the Cash Series Shares, annually, to compensate FSC. FSC may voluntarily choose to waive a portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net assets of each class of shares for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. For the fiscal year ended, October 31, 1995, the Institutional Shares fully waived its shareholder services fee. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company, (FServ) serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. MINNESOTA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS--During the year ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common Officers. These transactions were made at current market value pursuant to Rule 17a-7 under the Act amounting to $476,190,000 and $428,480,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Minnesota Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Minnesota Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights (see pages 2 and 16 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Minnesota Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 ADDRESSES - -------------------------------------------------------------------------------- Minnesota Municipal Cash Trust Cash Series Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 - ---------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - ---------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - ----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MINNESOTA MUNICIPAL CASH TRUST CASH SERIES SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 CUSIP 314229873 0082715A-CSS (12/95) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MINNESOTA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS The Institutional Shares of Minnesota Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Minnesota municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Minnesota, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and the regular personal income taxes imposed by the State of Minnesota consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Minnesota Municipal Securities 6 Investment Risks 6 Non-Diversification 7 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Institutional Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ HOW TO REDEEM SHARES 10 - ------------------------------------------------------ ACCOUNT AND SHARE INFORMATION 11 - ------------------------------------------------------ TAX INFORMATION 12 - ------------------------------------------------------ Federal Income Tax 12 State and Local Taxes 13 OTHER CLASSES OF SHARES 13 - ------------------------------------------------------ PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- CASH SERIES SHARES 15 - ------------------------------------------------------ FINANCIAL STATEMENTS 16 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 33 - ------------------------------------------------------ ADDRESSES 34 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................................. None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)................................................. None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................... None Redemption Fee (as a percentage of amount redeemed, if applicable).................... None Exchange Fee.......................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)...................................................... 0.13% 12b-1 Fee............................................................................. None Total Other Expenses.................................................................. 0.17% Shareholder Services Fee (after waiver)(2)................................. 0.00% Total Operating Expenses(3)...................................................... 0.30%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The maximum shareholder services fee is 0.25%. (3) The total operating expenses would have been 0.82% absent the voluntary waivers of a portion of the management fee and the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ---------------------------------------------------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period......... $3 $10 $17 $ 38
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. MINNESOTA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 33.
YEAR ENDED OCTOBER 31, ------------------------------------------------------------------- 1995 1994 1993 1992 1991 1990(A) ------ ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------- Net investment income 0.04 0.03 0.02 0.03 0.05 0.01 - -------------------------------------- LESS DISTRIBUTIONS - -------------------------------------- Distributions from net investment income (0.04) (0.03) (0.02) (0.03) (0.05) (0.01) - -------------------------------------- ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------- ------ ------ ------ ------ ------ ------ TOTAL RETURN (B) 3.82% 2.58% 2.43% 3.19% 4.89% 0.90% - -------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------- Expenses 0.30% 0.31% 0.31% 0.31% 0.30% 0.01%* - -------------------------------------- Net investment income 3.77% 2.55% 2.40% 3.10% 4.73% 6.45%* - -------------------------------------- Expense waiver/reimbursement (c) 0.52% 0.34% 0.34% 0.33% 0.43% 0.69%* - -------------------------------------- SUPPLEMENTAL DATA - -------------------------------------- Net assets, end of period (000 omitted) $212,392 $159,704 $165,865 $245,168 $124,603 $75,904 - --------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from September 10, 1990 (date of initial public investment) to October 31, 1990. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Trustees have established two classes of shares known as Institutional Shares and Cash Series Shares. This prospectus relates only to Institutional Shares of the Fund, which are designed primarily for financial institutions acting in a fiduciary capacity as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term Minnesota municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Minnesota taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the regular personal income taxes imposed by the State of Minnesota consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Minnesota municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, the Fund invests its assets so that (1) at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Minnesota regular personal income tax ("exempt interest dividends"); and (2) at least 95% of the exempt interest dividends that the Fund pays to its shareholders will derive interest income from Minnesota municipal obligations. The remaining 5% of such exempt interest dividends paid to shareholders will derive either from interest income on Minnesota municipal securities or interest income which is exempt from both federal regular and Minnesota regular personal income taxes. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Minnesota and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Minnesota state income tax imposed upon non-corporate taxpayers ("Minnesota Municipal Securities"). Examples of Minnesota Municipal Securities include, but are not limited to: - tax and revenue anticipation notes ("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 debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Minnesota Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Minnesota Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Minnesota Municipal Securities is subject to the federal alternative minimum tax. MINNESOTA MUNICIPAL SECURITIES Minnesota Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Minnesota Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Minnesota Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Minnesota Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Minnesota Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Minnesota Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Minnesota Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Minnesota Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Minnesota Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of its total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of Institutional Shares, computed at an annual rate, to obtain certain personal services for shareholders and provide maintenance of shareholder accounts ("shareholder services"). From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor may pay financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide certain services to shareholders. These services may include, but are not limited to, distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of shares. Any fees paid for these services by the distributor will be reimbursed by the adviser and not the Fund. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below: AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS - --------------------- ----------------------------------- .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of Institutional Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased either by wire or by check. The Fund reserves the right to reject any purchase request. To make a purchase, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken by telephone. The minimum initial investment is $25,000. However, an account may be opened with a smaller amount as long as the minimum is reached within 90 days. Minimum investments will be calculated by combining all accounts maintained with the Fund. Financial institutions may impose different minimum investment requirements on their customers. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as follows: Federated Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Minnesota Municipal Cash Trust--Institutional Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by mailing a check made payable to Minnesota Municipal Cash Trust--Institutional Shares to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are considered received when payment by check is converted into federal funds. This is normally the next business day after the check is received. SUBACCOUNTING SERVICES. Financial institutions are encouraged to open single master accounts. A subaccounting system is available through the transfer agent to minimize internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Fund shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. State securities laws may require certain financial institutions such as depository institutions to register as dealers. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after Federated Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 p.m (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If shares certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 4, 1995, Resource Bank & Trust Co., Minneapolis, MN, and Var & Co., St. Paul, MN, owned 25.57% and 49.63%, respectively, of the voting securities of the Fund's Institutional Shares and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Minnesota. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. MINNESOTA TAXES. Under existing Minnesota laws, distributions made by the Fund will be exempt from Minnesota regular personal income taxes provided that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and provided further that 95% of such distributions are derived from interest on obligations issued by the State of Minnesota or any of its political or governmental subdivisions, municipalities, or governmental agencies or instrumentalities. Distributions made by the Fund will also be exempt to the extent that they are derived from interest on federal obligations and are reported federally as dividend income by shareholders. Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to Minnesota regular personal income taxes. Dividends of the Fund are not exempt from Minnesota corporate income taxes. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers another class of shares called Cash Series Shares. Cash Series Shares are sold at net asset value primarily to retail customers of financial institutions and are subject to a minimum initial investment of $10,000 over a 90-day period. All classes are subject to certain of the same expenses. Cash Series Shares are distributed under a 12b-1 Plan adopted by the Fund and also are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-235-4669. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield for shares. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the shares, tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. MINNESOTA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--CASH SERIES SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants, on page 33.
YEAR ENDED OCTOBER 31, -------------------------------------------------- 1995 1994 1993 1992 1991(A) ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------ Net investment income 0.03 0.02 0.02 0.03 0.04 - ------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------ Distributions from net investment income (0.03) (0.02) (0.02) (0.03) (0.04) - ------------------------------------------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------ ------ ------ ------ ------ ------ TOTAL RETURN (B) 3.41% 2.17% 2.02% 2.78% 3.60% - ------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------ Expenses 0.70% 0.71% 0.71% 0.71% 0.64%* - ------------------------------------------ Net investment income 3.37% 2.15% 2.01% 2.75% 4.11%* - ------------------------------------------ Expense waiver/reimbursement (c) 0.62% 0.61% 0.44% 0.44% 0.59%* - ------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------ Net assets, end of period (000 omitted) $131,471 $94,335 $67,521 $75,044 $69,747 - ------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from January 7, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--99.3% - ----------------------------------------------------------------------- MINNESOTA--99.0% ------------------------------------------------------- $ 6,750,000 Anoka City, MN Solid Waste Disposal Authority, 3.85% CP (United Power Associates)/(National Rural Utilities Cooperative Finance Corp. GTD), Mandatory Tender 11/10/1995 VMIG1 $ 6,750,000 ------------------------------------------------------- 2,050,000 Anoka, MN, Multifamily Housing Revenue Bonds Weekly VRDNs (Walker Plaza Project)/(First Bank NA, Minneapolis LOC) A-1 2,050,000 ------------------------------------------------------- 3,880,000 Apple Valley, MN, IDRB (Series 1995) Weekly VRDNs (AV Development Company Project)/(Firstar Bank, Minnesota LOC) A-1 3,880,000 ------------------------------------------------------- 2,800,000 Baudette, MN, IDR (Series 1989) Weekly VRDNs (Reid Powell, Inc.)/(Nationsbank of Georgia, N.A. LOC) P-1 2,800,000 ------------------------------------------------------- 2,000,000 Becker, MN, PCR (Series 1993-B), 3.75% CP (Northern States Power Co.), Mandatory Tender 1/25/1996 VMIG1 2,000,000 ------------------------------------------------------- 4,500,000 Becker, MN, PCR (Series 1993A & B), 3.80% CP (Northern States Power Co.), Mandatory Tender 11/21/1995 VMIG1 4,500,000 ------------------------------------------------------- 4,000,000 Becker, MN, PCR (Series 1993A & B), 3.80% CP (Northern States Power Co.), Mandatory Tender 11/22/1995 VMIG1 4,000,000 ------------------------------------------------------- 1,000,000 Bloomington, MN Port Authority, Special Tax Revenue Refunding Bonds (Series 1994B) Weekly VRDNs (Mall of America)/(FSA INS)/(Credit Local de France LIQ) A-1+ 1,000,000 ------------------------------------------------------- 3,600,000 Bloomington, MN, IDRB (Series 1995) Weekly VRDNs (Now Technologies, Inc. Project)/(Norwest Bank Minnesota, Minneapolis LOC) A-1+ 3,600,000 ------------------------------------------------------- 5,000,000 Bloomington, MN, Multi-Family Housing Weekly VRDNs (Crowl Bloomington Apartments)/(Citibank NA, New York LOC) P-1 5,000,000 ------------------------------------------------------- 3,490,000 Brooklyn Center, MN, ISD #286, 4.70% TANs (Minnesota State GTD), 3/27/1996 NR(2) 3,491,332 -------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------- $ 8,080,000 Burnsville, MN, Multi-Family Housing Weekly VRDNs (Berkshire of Burnsville)/(Sumitomo Bank Ltd., Osaka LOC) A-1 $ 8,080,000 ------------------------------------------------------- 1,270,000 Chaska, MN IDA Weekly VRDNs (Laeration Industries)/ (Norwest Bank Minnesota, Minneapolis LOC) A-1+ 1,270,000 ------------------------------------------------------- 1,900,000 Coon Rapids, MN Hospital Authority, (Series 1985) Weekly VRDNs (Health Central System)/(First Bank NA, Minneapolis LOC) A-1 1,900,000 ------------------------------------------------------- 1,065,000 Crosby-Ironton, MN Independent School District No. 182, GO Tax Anticipation Certificates of Indebtedness (Series 1995A), 4.75% TANs (Minnesota State GTD), 3/22/1996 NR(2) 1,065,194 ------------------------------------------------------- 5,500,000 Crystal, MN IDA Weekly VRDNs (Crystal Gallery Mall, MN)/(Citibank NA, New York LOC) P-1 5,500,000 ------------------------------------------------------- 10,745,000 Dakota County & Washington County MN Housing & Redevelopment Authority, Bloomington Mortgage Revenue, 5.75% TOBs (GNMA COL)/(Meridian Bank, Reading, PA LIQ), Optional Tender 9/1/1996 NR(1) 10,896,281 ------------------------------------------------------- 1,835,000 Dakota County, MN Housing & Redevelopment Authority, (Custodial Receipts), 5.10% TOBs (GNMA COL)/(Meridian Bank, Reading, PA LIQ), Optional Tender 3/1/1996 NR(1) 1,835,000 ------------------------------------------------------- 3,000,000 Dakota County, Washington County & Anoka City, MN Housing & Redevelopment Authority, (Custodial Receipts)/(Series 1988), 4.35% TOBs (United States Treasury COL)/(Meridian Bank, Reading, PA LIQ), Optional Tender 11/1/1995 NR(1) 3,000,000 ------------------------------------------------------- 4,785,000 Duluth, MN, GO Certificate of Indebtedness (Series 1995), 5.00% TANs, 12/29/1995 NR(3) 4,785,874 ------------------------------------------------------- 8,000,000 Eagan, MN, Multi-Family Housing (Series 1992A) Weekly VRDNs (Cinnamon Ridge)/(Mellon Bank NA, Pittsburgh LOC) VMIG1 8,000,000 -------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------- $ 870,000 Eden Prairie, MN IDA, #194 Weekly VRDNs (Richard W. Cohen Project)/(Norwest Bank Minnesota, Minneapolis LOC) P-1 $ 870,000 ------------------------------------------------------- 138,004 Eden Prairie, MN IDA, (Series 1987) Weekly VRDNs (Minnesota Supply Co.)/(Norwest Bank Minnesota, Minneapolis LOC) P-1 138,004 ------------------------------------------------------- 1,200,000 Elk River, MN Weekly VRDNs (Tescom Project)/(Norwest Bank Minnesota, Minneapolis LOC) P-1 1,200,000 ------------------------------------------------------- 5,000,000 Faribault, MN IDA, (Series 1988) Weekly VRDNs (Jerome Foods)/(Norwest Bank Minnesota, Minneapolis LOC) P-1 5,000,000 ------------------------------------------------------- 1,000,000 Hennepin Co. MN, (Series 1995C) Weekly VRDNs (Hennepin Co. MN GTD) NR(1) 1,000,000 ------------------------------------------------------- 2,500,000 Hubbard County, MN, Solid Waste Disposal (Series 1990) Weekly VRDNs (Potlatch Corp.)/(Credit Suisse, Zurich LOC) A-1+ 2,500,000 ------------------------------------------------------- 4,000,000 Maple Grove, MN IDA, (Series 1991A) Weekly VRDNs (Eagle Ridge, MN Apartments)/(Sumitomo Bank Ltd., Osaka LOC) A-1 4,000,000 ------------------------------------------------------- 3,000,000 Maple Grove, MN IDA, (Series 1991B) Weekly VRDNs (Eagle Ridge, MN Apartments)/(First Bank NA, Minneapolis LOC) A-1 3,000,000 ------------------------------------------------------- 2,025,000 Maplewood, MN, Multi-Family Housing (Series 1993) Weekly VRDNs (Silver Ridge Project)/(Federal Home Loan Bank of Chicago LOC) A-1+ 2,025,000 ------------------------------------------------------- 2,640,000 Mendota Heights, MN, Multi-Family Revenue Bonds Weekly VRDNs (Lexington Heights Apartments)/ (Sumitomo Bank Ltd., Osaka LOC) A-1 2,640,000 ------------------------------------------------------- 1,000,000 Metropolitan Council, MN, Minneapolis-St. Paul Metropolitan Area (Series B), 5.50% Bonds, 12/1/1995 NR(1) 1,000,832 ------------------------------------------------------- 5,000,000 Minneapolis Special School District, MN, GO Tax Anticipation Certificate of Indebtedness Independent School District No 1, 5.75% TANs, 1/25/1996 SP-1+ 5,007,196 -------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------- $ 715,000 Minneapolis, MN IDA Weekly VRDNs (JTJ Co.)/(First Bank NA, Minneapolis LOC) P-1 $ 715,000 ------------------------------------------------------- 1,400,000 Minneapolis, MN, (Series 1989) Weekly VRDNs (Mt. Sinai Medical Building Association)/(Norwest Bank Minnesota, Minneapolis LOC) A-1+ 1,400,000 ------------------------------------------------------- 7,000,000 Minneapolis, MN, (Series 1995B) Weekly VRDNs VMIG1 7,000,000 ------------------------------------------------------- 3,000,000 Minneapolis, MN, GO Bonds (Series 1995) Weekly VRDNs (Arena Acquisition Project (MN)) A-1+ 3,000,000 ------------------------------------------------------- 3,870,000 Minneapolis, MN, Rental Housing Revenue Bonds (Series 1994A), 5.40% TOBs (Driftwood Apartments Project)/(First Bank NA, Minneapolis LOC), Mandatory Tender 11/1/1995 A-1 3,870,000 ------------------------------------------------------- 4,800,000 (a) Minneapolis/St. Paul MN Housing Finance Board, SFM Revenue Bonds, Merlots (Series D), 4.375% TOBs (GNMA COL)/(Meridian Bank, Reading, PA LIQ), Optional Tender 4/1/1996 NR(1) 4,800,000 ------------------------------------------------------- 1,276,000 Minneapolis/St. Paul MN Housing Finance Board, Single Family Mortgage Revenue Bonds, 4.625% TOBs (GNMA COL)/(Meridian Bank, Reading, PA LIQ), Optional Tender 11/1/1995 NR(1) 1,276,000 ------------------------------------------------------- 8,000,000 Minnesota State Commissioner of Iron Range Resources & Rehabilitation, (Series 1991) Weekly VRDNs (Louisiana- Pacific Corp.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) P-1 8,000,000 ------------------------------------------------------- 5,000,000 Minnesota State HFA, Single Family Mortgage Bonds (Series V), 4.95% TOBs (Bayerische Landesbank Girozentrale LOC), Mandatory Tender 12/14/1995 A-1+ 5,000,000 ------------------------------------------------------- 3,800,000 Minnesota State Higher Education Coordinating Board, (Series 1992A) Weekly VRDNs (First Bank NA, Minneapolis LIQ) VMIG1 3,800,000 ------------------------------------------------------- 7,000,000 Minnesota State Higher Education Coordinating Board, 1992 (Series B) Weekly VRDNs (First Bank NA, Minneapolis LIQ) VMIG1 7,000,000 -------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------- $ 6,500,000 Minnesota State Higher Education Coordinating Board, 1992 (Series C) Weekly VRDNs (First Bank NA, Minneapolis LIQ) VMIG1 $ 6,500,000 ------------------------------------------------------- 12,700,000 Minnesota State Higher Education Coordinating Board, 1992 (Series C) Weekly VRDNs (First Bank NA, Minneapolis LIQ) VMIG1 12,700,000 ------------------------------------------------------- 3,400,000 Minnesota State Higher Education Coordinating Board, Supplemental Student Loan Program Variable Rate Refunding Revenue Bonds (Series 1994A) Weekly VRDNs (Norwest Bank Minnesota, Minneapolis LIQ) VMIG1 3,400,000 ------------------------------------------------------- 4,300,000 Minnesota State Higher Education Facility Authority Weekly VRDNs (Carlton College)/(Swiss Bank Corp., Basle LOC) VMIG1 4,300,000 ------------------------------------------------------- 5,925,000 Minnesota State, 7.00% Bonds (United States Treasury PRF), 8/1/1996 (@100) NR(1) 6,069,103 ------------------------------------------------------- 11,000,000 Minnesota Tax and Aid Anticipation Borrowing Program, (Series 1995A), 4.25% TANs (Minnesota State GTD), 8/23/1996 NR(2) 11,025,570 ------------------------------------------------------- 7,300,000 Minnesota Tax and Aid Anticipation Borrowing Program, Certificates of Participation, Aid Anticipation Series 1995B, 4.30% TRANs (Minnesota State GTD), 9/13/1996 NR(2) 7,318,174 ------------------------------------------------------- 9,800,000 Minnetonka, MN, Multi-Family Housing Revenue Bonds Weekly VRDNs (The Cliffs at Ridgedale)/(Citibank NA, New York LOC) A-1 9,800,000 ------------------------------------------------------- 5,900,000 Minnetonka, MN, Multifamily Housing Revenue Refunding Bonds (Series 1995) Weekly VRDNs (Southampton Apartments Project (MN))/(National Bank of Canada, Montreal LOC) P-1 5,900,000 ------------------------------------------------------- 1,300,000 New Brighton, MN, IDR Weekly VRDNs (Unicare Homes, Inc.)/(Banque Paribas, Paris LOC) A-1 1,300,000 -------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------- $ 1,000,000 New Hope, MN IDRB, (Series 1994) Weekly VRDNs (Gaines and Hanson Printing Co.)/(Norwest Bank Minnesota, Minneapolis LOC) A-1+ $ 1,000,000 ------------------------------------------------------- 3,825,000 New Hope, MN Weekly VRDNs (Paddock Labs)/ (Norwest Bank Minnesota, Minneapolis LOC) P-1 3,825,000 ------------------------------------------------------- 2,580,000 Olmsted County, MN Building Authority, Certificates of Participation Weekly VRDNs (Human Services Infrastructure)/(Sanwa Bank Ltd, Osaka LOC) A-1+ 2,580,000 ------------------------------------------------------- 2,600,000 Perham, MN IDA Weekly VRDNs (Land O' Lakes, Inc.)/ (Rabobank Nederland, Utrecht LOC) A-1+ 2,600,000 ------------------------------------------------------- 1,365,000 Plymouth, MN Weekly VRDNs (Nuaire, Inc.)/ (Norwest Bank Minnesota, Minneapolis LOC) P-1 1,365,000 ------------------------------------------------------- 5,000,000 Plymouth, MN, IDRB (Series 1994) Weekly VRDNs (Olympic Steel, Inc.)/(National City Bank, Cleveland, OH LOC) P-1 5,000,000 ------------------------------------------------------- 1,690,000 Port of Austin, MN Weekly VRDNs (Mower House Color)/(Norwest Bank Minnesota, Minneapolis LOC) P-1 1,690,000 ------------------------------------------------------- 6,500,000 Rochester, MN Health Care Facility Authority Weekly VRDNs (Mayo Foundation) VMIG1 6,500,000 ------------------------------------------------------- 4,000,000 Rochester, MN Health Care Facility Authority Weekly VRDNs (Mayo Foundation) VMIG1 4,000,000 ------------------------------------------------------- 2,000,000 Rochester, MN Health Care Facility Authority, (Series C), 3.70% CP (Mayo Foundation), Mandatory Tender 11/16/1995 VMIG1 2,000,000 ------------------------------------------------------- 1,250,000 Rogers, MN IDA Weekly VRDNs (Metal Sales Manufacturing Corp.)/(Society National Bank, Cleveland, OH LOC) P-1 1,250,000 ------------------------------------------------------- 2,925,000 Rogers, MN IDA, Variable Rate Demand IDRB Weekly VRDNs (DAC Development, LLC Project)/(Norwest Bank Minnesota, Minneapolis LOC) A-1+ 2,925,000 -------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------- $ 8,000,000 Shakopee, MN Hospital Finance Authority Weekly VRDNs (St. Francis Regional Medical Center)/(Citibank NA, New York LOC) A-1 $ 8,000,000 ------------------------------------------------------- 2,000,000 Southern Minnesota Municipal Power Agency, 9.50% Bonds (United States Treasury PRF), 1/1/1996 NR(1) 2,055,531 ------------------------------------------------------- 7,000,000 St. Cloud, MN Hospital Facility Authority, (Series 1990A) Weekly VRDNs (St. Cloud Hospital)/(Kredietbank N.V., Brussels LOC) A-1+ 7,000,000 ------------------------------------------------------- 1,735,000 St. Cloud, MN Housing & Redevelopment Authority, Revenue Refunding Bonds (Series 1994A) Weekly VRDNs (Coborn's Incorporated Project)/(Norwest Bank Minnesota, Minneapolis LOC) A-1+ 1,735,000 ------------------------------------------------------- 3,000,000 St. Cloud, MN Housing & Redevelopment Authority, Revenue Refunding Bonds (Series 1994B) Weekly VRDNs (Coborn's Incorporated Project)/(Norwest Bank Minnesota, Minneapolis LOC) A-1+ 3,000,000 ------------------------------------------------------- 250,000 St. Louis Park Hennepin County, MN, GO (Series 1987C) Weekly VRDNs (Bayerische Vereinsbank AG, Munich LOC) VMIG1 250,000 ------------------------------------------------------- 5,000,000 St. Paul, MN Housing & Redevelopment Authority Weekly VRDNs (District Cooling St. Paul, Inc.)/ (Credit Local de France LOC) A-1+ 5,000,000 ------------------------------------------------------- 500,000 St. Paul, MN Housing & Redevelopment Authority Weekly VRDNs (United Way)/(First Bank NA, Minneapolis LOC) A-1 500,000 ------------------------------------------------------- 2,350,000 St. Paul, MN Housing & Redevelopment Authority, (Series 1994) Weekly VRDNs (Minnesota Children's Museum)/(First Bank NA, Minneapolis LOC) A-1 2,350,000 ------------------------------------------------------- 2,000,000 St. Paul, MN Housing & Redevelopment Authority, District Cooling Revenue Bonds (1995 Series I) Weekly VRDNs (Credit Local de France LOC) P-1 2,000,000 ------------------------------------------------------- 7,250,000 St. Paul, MN Independent School District No. 625, (Series A), 5.375% TANs, 3/28/1996 MIG1 7,281,855 -------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------- $ 4,600,000 St. Paul, MN Port Authority, (Series 1991) Weekly VRDNs (West Gate Office)/(First Bank NA, Minneapolis LOC) A-1 $ 4,600,000 ------------------------------------------------------- 1,850,000 St. Peter, MN Independent School District #508, Aid Anticipation Certificates of Indebtedness, 3.96% BANs (Minnesota State GTD), 8/29/1996 NR(2) 1,850,427 ------------------------------------------------------- 1,000,000 Steele County, MN, IDRB (Series 1994) Weekly VRDNs (Blount, Inc.)/(Nationsbank of Georgia, N.A. LOC) A-1 1,000,000 ------------------------------------------------------- 6,500,000 University of Minnesota, (Series F), 3.65% TOBs (Regents of University of Minnesota), Optional Tender 2/1/1996 A-1+ 6,500,000 ------------------------------------------------------- 13,015,000 Washington County, MN Housing & Redevelopment Authority, (Series 90) Weekly VRDNs (Granada Pond Apartments)/(Sumitomo Bank Ltd., Osaka LOC) A-1 13,015,000 ------------------------------------------------------- 1,490,000 Wells, MN, 5.00% TOBs (Stokely, Inc.)/(NBD Bank, NA, Indianapolis LOC), Optional Tender 12/1/1995 A-1+ 1,490,000 ------------------------------------------------------- 3,000,000 White Bear Lake, MN, (Series 1993) Weekly VRDNs (Taylor Corp.)/(Norwest Bank Minnesota, Minneapolis LOC) A-1+ 3,000,000 ------------------------------------------------------- 5,180,000 White Bear, MN Weekly VRDNs (Thermoform Plastic, Inc.)/(Norwest Bank Minnesota, Minneapolis LOC) A-1+ 5,180,000 ------------------------------------------------------- 2,000,000 Winsted, MN IDA Weekly VRDNs (Sterner Lighting Systems)/(Fleet National Bank, Providence, R.I. LOC) A-1 2,000,000 ------------------------------------------------------- ------------ Total 340,501,373 ------------------------------------------------------- ------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- PUERTO RICO--0.3% ------------------------------------------------------- $ 1,000,000 Puerto Rico Government Development Bank Weekly VRDNs (Credit Suisse, Zurich LOC) A-1+ $ 1,000,000 ------------------------------------------------------- ------------ TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $341,501,373 ------------------------------------------------------- ------------
Securities that are subject to Alternative Minimum Tax represent 35.3% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. This security has been determined to be liquid under criteria established by the Board of Trustees. At the end of the period, this security amounted to $4,800,000 which represents 1.4% of net assets. (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($343,863,341) at October 31, 1995. MINNESOTA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronyms are used throughout this portfolio: BANs -- Bond Anticipation Notes COL -- Collateralized CP -- Commercial Paper FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association GO -- General Obligation GTD -- Guaranty HFA -- Housing Finance Authority IDA -- Industrial Development Authority IDR -- Industrial Development Revenue IDRB -- Industrial Development Revenue Bonds INS -- Insured ISD -- Independent School District LIQ -- Liquidity Agreement LOC -- Letter of Credit PCR -- Pollution Control Revenue PRF -- Prerefunded SFM -- Single Family Mortgage TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds TRANs -- Tax and Revenue Anticipation Notes VRDNs -- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $341,501,373 - ------------------------------------------------------------------------------- Cash 780,299 - ------------------------------------------------------------------------------- Income receivable 2,441,223 - ------------------------------------------------------------------------------- Deferred expenses 2,452 - ------------------------------------------------------------------------------- ------------ Total assets 344,725,347 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for shares redeemed $ 75,028 - -------------------------------------------------------------------- Income distribution payable 656,222 - -------------------------------------------------------------------- Accrued expenses 130,756 - -------------------------------------------------------------------- -------- Total liabilities 862,006 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 343,863,341 shares outstanding $343,863,341 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------- INSTITUTIONAL SHARES: - ------------------------------------------------------------------------------- ($212,391,871 / 212,391,871 shares outstanding) $1.00 - ------------------------------------------------------------------------------- ------------ CASH SERIES SHARES: - ------------------------------------------------------------------------------- ($131,471,470 / 131,471,470 shares outstanding) $1.00 - ------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------- Interest $13,813,482 - ---------------------------------------------------------------------------------- EXPENSES: - ---------------------------------------------------------------------------------- Investment advisory fee $1,357,870 - --------------------------------------------------------------------- Administrative personnel and services fee 256,977 - --------------------------------------------------------------------- Custodian fees 69,238 - --------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 98,154 - --------------------------------------------------------------------- Directors'/Trustees' fees 4,382 - --------------------------------------------------------------------- Auditing fees 14,885 - --------------------------------------------------------------------- Legal fees 3,834 - --------------------------------------------------------------------- Portfolio accounting fees 66,897 - --------------------------------------------------------------------- Distribution services fee--Cash Series Shares 599,206 - --------------------------------------------------------------------- Shareholder services fee--Institutional Shares 549,269 - --------------------------------------------------------------------- Shareholder services fee--Cash Series Shares 299,603 - --------------------------------------------------------------------- Share registration costs 29,486 - --------------------------------------------------------------------- Printing and postage 23,165 - --------------------------------------------------------------------- Insurance premiums 8,171 - --------------------------------------------------------------------- Miscellaneous 4,686 - --------------------------------------------------------------------- ---------- Total expenses 3,385,823 - --------------------------------------------------------------------- Waivers-- - --------------------------------------------------------------------- Waiver of investment advisory fee $(906,031) - ---------------------------------------------------------- Waiver of distribution services fee--Cash Series Shares (407,672) - ---------------------------------------------------------- Waiver of shareholder services fee--Institutional Shares (549,269) - ---------------------------------------------------------- Waiver of shareholder services fee--Cash Series Shares (11,773) - ---------------------------------------------------------- --------- Total waivers (1,874,745) - --------------------------------------------------------------------- ---------- Net expenses 1,511,078 - ---------------------------------------------------------------------------------- ----------- Net investment income $12,302,404 - ---------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ------------------------------ 1995 1994 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - --------------------------------------------------------------- OPERATIONS-- - --------------------------------------------------------------- Net investment income $ 12,302,404 $ 6,226,990 - --------------------------------------------------------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS-- - --------------------------------------------------------------- Distributions from net investment income - --------------------------------------------------------------- Institutional Shares (8,269,227) (4,475,720) - --------------------------------------------------------------- Cash Series Shares (4,033,177) (1,751,270) - --------------------------------------------------------------- ------------- ------------- Change in net assets resulting from distributions to shareholders (12,302,404) (6,226,990) - --------------------------------------------------------------- ------------- ------------- SHARE TRANSACTIONS-- - --------------------------------------------------------------- Proceeds from sale of shares 1,040,754,759 931,933,710 - --------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 4,384,166 1,945,475 - --------------------------------------------------------------- Cost of shares redeemed (955,314,263) (913,227,051) - --------------------------------------------------------------- ------------- ------------- Change in net assets resulting from share transactions 89,824,662 20,652,134 - --------------------------------------------------------------- ------------- ------------- Change in net assets 89,824,662 20,652,134 - --------------------------------------------------------------- NET ASSETS: - --------------------------------------------------------------- Beginning of period 254,038,679 233,386,545 - --------------------------------------------------------------- ------------- ------------- End of period $ 343,863,341 $ 254,038,679 - --------------------------------------------------------------- ------------- -------------
(See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Minnesota Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers two classes of shares: Institutional Shares and Cash Series Shares. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 73.4% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or MINNESOTA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- supported (backed) by a letter of credit for any one institution or agency does not exceed 10.9% of total investments. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. In some cases, the issuer of restricted securities has agreed to register such securities for resale, at the issuer's expense either upon demand by the Fund or in connection with another registered offering of the securities. Many restricted securities may be resold in the secondary market in transactions exempt from registration. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined by the Fund's pricing committee. Additional information on each restricted security held at October 31, 1995 is as follows:
FUND SECURITY ACQUISITION DATE ACQUISITION COST -------------------------------------------------- ---------------- ---------------- Minneapolis/St. Paul MN Housing Finance Board, SFM Revenue Bonds, Merlots (Series D) 10/15/95 $4,800,000
OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1995, capital paid-in aggregated $343,863,341. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, ----------------------------- INSTITUTIONAL SHARES 1995 1994 - --------------------------------------------------------------- ------------ ------------ Shares sold 546,893,719 554,305,186 - --------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 425,031 266,557 - --------------------------------------------------------------- Shares redeemed (494,630,825) (560,732,943) - --------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional share transactions 52,687,925 (6,161,200) - --------------------------------------------------------------- ------------ ------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ----------------------------- CASH SERIES SHARES 1995 1994 - --------------------------------------------------------------- ------------ ------------ Shares sold 493,861,040 377,628,524 - --------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 3,959,135 1,678,918 - --------------------------------------------------------------- Shares redeemed (460,683,438) (352,494,108) - --------------------------------------------------------------- ------------ ------------ Net change resulting from Cash Series share transactions 37,136,737 26,813,334 - --------------------------------------------------------------- ------------ ------------ Net change resulting from share transactions 89,824,662 20,652,134 - --------------------------------------------------------------- ------------ ------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the daily net assets of the Fund to finance activities intended to result in the sale of the Fund's Cash Series Shares. The Plan provides that the Fund may incur distribution expenses up to .50 of 1% of the average daily net assets of the Cash Series Shares, annually, to compensate FSC. FSC may voluntarily choose to waive a portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net assets of each class of shares for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. For the fiscal year ended, October 31, 1995, the Institutional Shares fully waived its shareholder services fee. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company, (FServ) serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. MINNESOTA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS--During the year ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common Officers. These transactions were made at current market value pursuant to Rule 17a-7 under the Act amounting to $476,190,000 and $428,480,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Minnesota Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Minnesota Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights (see pages 2 and 15 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Minnesota Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 ADDRESSES - -------------------------------------------------------------------------------- Minnesota Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 - ---------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - ---------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - ----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MINNESOTA MUNICIPAL CASH TRUST INSTITUTIONAL SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 CUSIP 314229402 0082715A-IS (12/95) (LOGO) MINNESOTA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL CASH TRUST) CASH SERIES SHARES INSTITUTIONAL SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectuses of Minnesota Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal Trust (the "Trust") dated December 31, 1995. This Statement is not a prospectus. You may request a copy of the prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-235-4669. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1995 FEDERATED SECURITIES CORP. Distributor A subsidiary of Federated Investors INVESTMENT POLICIES 2 Acceptable Investments 2 Participation Interests 2 Municipal Leases 2 Ratings 3 When-Issued and Delayed Delivery Transactions 4 Repurchase Agreements 4 Reverse Repurchase Agreements 5 Credit Enhancement 5 MINNESOTA INVESTMENT RISKS 6 INVESTMENT LIMITATIONS 7 Regulatory Compliance 11 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 Share Ownership 10 Trustees Compensation 24 Trustee Liability 26 INVESTMENT ADVISORY SERVICES 26 Investment Adviser 26 Advisory Fees 26 BROKERAGE TRANSACTIONS 27 OTHER SERVICES 29 Fund Administration 29 Custodian and Portfolio Recordkeeper 29 Transfer Agent 29 Independent Public Accountants 29 DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT 30 DETERMINING NET ASSET VALUE 31 REDEMPTION IN KIND 32 MASSACHUSETTS PARTNERSHIP LAW 32 THE FUND'S TAX STATUS 33 PERFORMANCE INFORMATION 33 Yield 34 Effective Yield 34 Tax-Equivalent Yield 34 Tax-Equivalency Table 35 Total Return 36 Performance Comparisons 37 ABOUT FEDERATED INVESTORS 38 APPENDIX 40 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security, the issuer of any demand feature applicable to the security, or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Board of Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of non-appropriation"); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1, or 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 rating categories. See "Regulatory Compliance." WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated on the Fund`s records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. REVERSE REPURCHASE AGREEMENTS The Fund may enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument to another person, such as a financial institutions, broker, or dealer, in return for a percentage of the instrument's market value in cash, and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed-upon rate. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but the ability to enter into reverse repurchase agreements does not ensure that the Fund will be able to avoid selling portfolio instruments at a disadvantageous time. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the "credit enhancer"), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. MINNESOTA INVESTMENT RISKS Minnesota has a diversified economy, the structure of which has increasingly come to resemble the nation as a whole. Minnesota's emergence as a regional center is evidenced by the comparatively high rates of employment growth in trade, finance, insurance, and service industries over the past ten years. Agriculture, which had been severely affected since 1981, appears to be improving with land values now stabilizing at levels seen in the early 1980's. State unemployment rates remain below the national level; and personal income has grown more rapidly than that of the nation as a whole, with personal income per capita remaining slightly above the national average. Following a period of volatility in the early 1980's, Minnesota's fiscal operations have been recently characterized by a strong financial position and moderate debt burden. Minnesota has disciplined its budget process through frequent reviews of revenue forecasts and timely legislative action. 1994-1995 revenues exceeded projections. The general fund is estimated to have closed at June 30, 1995 with a balance of $421 million in addition to a $500 million cash flow reserve. The 1996-1997 biennial budget decreases the cash flow reserve to $350 million and maintains the general fund at $220 million. Minnesota's debt position is excellent with nearly exclusive use of general obligation bonds. Amortization of general obligation debt is rapid, with nearly three-quarters due within ten years, fully characteristic of high quality borrowers. Debt service requirements are a mere 3% of annual expenditures. State credit for Northwest Airlines has been used this year to back about $45 million in bonds, a much more modest amount than originally planned. The overall credit quality of the state is further demonstrated by its debt ratings. Minnesota maintains an Aa1 rating from Moody's Investors Service, Inc. Standard & Poor's Ratings Group rates the state AA+. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as are necessary for clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. During the period any reverse repurchase agreements are outstanding, the Fund will restrict the purchase of portfolio securities to money market instruments maturing on or before the expiration date of the reverse repurchase agreements, but only to the extent necessary to assure completion of the reverse repurchase agreements. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets except that it may acquire publicly or nonpublicly issued Minnesota municipal securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies, limitations, or its Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate or real estate limited partnerships , although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of the value of its net assets in securities subject to restrictions on resale under federal securities law, except for certain restricted securities which meet the criteria for liquidity established by the Trustees. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry, or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government , its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above limitations cannot be changed without shareholder approval. The following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers (including companies responsible for paying principal and interest on industrial development bonds) which have records of less than three years of continuous operations, including the operation of any predecessor. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES The Fund will not purchase or retain the securities of any issuer if the Officers and Trustees of the Trust or its investment adviser, owning individually more than .50 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. INVESTING IN MINERALS The Fund will not purchase or sell interests in oil, gas, or other mineral exploration or development programs or leases, although it may purchase the securities of issuers which invest in or sponsor such programs. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund does not intend to borrow money or pledge securities in excess of 5% of the value of its net assets during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments, as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT OFFICERS AND TRUSTEES ARE LISTED WITH THEIR ADDRESSES, BIRTHDATES, PRESENT POSITIONS WITH FEDERATED MUNICIPAL TRUST, AND PRINCIPAL OCCUPATIONS. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President of the Trust . Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds; formerly, Senior Partner, Ernst & Young LLP. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; President, Northgate Village Development Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Director, Trustee, or Managing General Partner of the Funds; formerly, President, Naples Property Management, Inc. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee, or Managing General Partner of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine and Member, Board of Trustees, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director, Trustee, or Managing General Partner of the Funds. Edward L. Flaherty, Jr.@ Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director, Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson * Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. and Federated Administrative Services. Peter E. Madden Seacliff 562 Bellevue Avenue Newport, RI Birthdate: March 16, 1942 Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, Trustee, or Managing General Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation. Gregor F. Meyer Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General Partner of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director, Trustee or Managing General Partner of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics and Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; founding Chairman, National Advisory Council for Environmental Policy and Technology and Federal Emergency Management Advisory Board. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/marketing consultant; Conference Coordinator, Non-profit entities; Director, Trustee, or Managing General Partner of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative Services, Federated Services Company, and Federated Shareholder Services; 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 of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. David M. Taylor Federated Investors Tower Pittsburgh, PA Birthdate: January 13, 1947 Treasurer Senior Vice President, Controller, and Trustee, Federated Investors; Controller, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., and Passport Research, Ltd.; Senior Vice President, Federated Shareholder Services; Vice President, Federated Administrative Services; Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President and Secretary Executive Vice President, Secretary, General Counsel, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds. * This Trustee is deemed to be an "interested person" as defined in the Investment Company Act of 1940. @ Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. As referred to in the list of Trustees and Officers, "Funds" includes the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Master Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5 Years; 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; 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 U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut 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; The Virtus Funds; World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 4, 1995, the following shareholder(s) of record owned 5% or more of the outstanding Cash Series Shares of the Minnesota Municipal Cash Trust: King Holding Corp., St. Paul, MN, 5.35%; Voyageur Fund Managers, Minneapolis, MN, 8.37%; Juran & Moody, Inc., St. Paul, MN, 8.93%; and FBS Investment Series, Inc., Minneapolis, MN, 9.22%. As of December 4, 1995, the following shareholder(s) of record owned 5% or more of the outstanding Institutional Shares of the Minnesota Municipal Cash Trust: Resource Bank & Trust Co., Minneapolis, MN, 25.57% and Var & Co., St. Paul, MN, 49.63%. TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 68 other investment companies in the Fund Complex Thomas G. Bigley $2,458 $20,688 for the Trust and Trustee 49 other investment companies in the Fund Complex John T. Conroy, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex William J. Copeland $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Peter E. Madden $2,757 $90,563 for the Trust and Trustee 64 other investment companies in the Fund Complex Gregor F. Meyer $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex John E. Murray, Jr., $1,762 $0 for the Trust and Trustee 64 other investment companies in the Fund Complex Wesley W. Posvar $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Marjorie P. Smuts $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1995. #The aggregate compensation is provided for the Trust which is comprised of 15 portfolios. +The information is provided for the last calendar year. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1995, 1994, and 1993, the adviser earned $1,357,870, $1,025,614, and $1,077,211, respectively, of which $906,031, $868,068 and $915,191, respectively, were waived. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this 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 fees. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Board of Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal years ended October 31, 1995, 1994, and 1992, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc., also a subsidiary of Federated Investors, served as the Fund's Administrator. (For purposes of this Statement of Additional Information, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the "Administrators".) For the fiscal years ended October 31, 1995, 1994, and 1993, the Administrators earned $256,977, $249,373, and $333,328, respectively. Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, holds approximately 20% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. CUSTODIAN AND PORTFOLIO RECORDKEEPER State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. TRANSFER AGENT As transfer agent, Federated Services Company maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT 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; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal year ending October 31, 1995, payments in the amount of $599,206 were made pursuant to the Distribution Plan, of which $407,672 was waived. In addition, for this period, payments in the amount of $848,872 were made pursuant to the Shareholder Services Agreement, of which $561,042 was waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. For the seven-day period ended October 31, 1995, the yields for Cash Series Shares and Institutional Shares were 3.39% and 3.79%, respectively. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended October 31, 1995, the effective yields for Cash Series Shares and Institutional Shares were 3.44% and 3.86%, respectively. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal rate for individuals) and assuming that income is 100% exempt. For the seven-day period ended October 31, 1995, the tax-equivalent yields for Cash Series Shares and Institutional Shares were 6.53% and 7.30%, respectively. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a "tax- free" investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1995 State of Minnesota COMBINED FEDERAL AND STATE INCOME TAX BRACKET: 23.00% 36.50% 39.50% 44.50% 48.10% JOINT $1- $39,001- $94,251- $143,601- OVER RETURN 39,000 94,250 143,600 256,500 256,500 SINGLE $1- $23,351- $56,551- $117,951- OVER RETURN 23,350 56,550 117,950 256,500 256,500 Tax-Exempt Yield Taxable Yield Equivalent 1.50% 1.95% 2.36% 2.48% 2.70% 2.89% 2.00% 2.60% 3.15% 3.31% 3.60% 3.85% 2.50% 3.25% 3.94% 4.13% 4.50% 4.82% 3.00% 3.90% 4.72% 4.96% 5.41% 5.78% 3.50% 4.55% 5.51% 5.79% 6.31% 6.74% 4.00% 5.19% 6.30% 6.61% 7.21% 7.71% 4.50% 5.84% 7.09% 7.44% 8.11% 8.67% 5.00% 6.49% 7.87% 8.26% 9.01% 9.63% 5.50% 7.14% 8.66% 9.09% 9.91% 10.60% 6.00% 7.79% 9.45% 9.92% 10.81% 11.56% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of Fund shares. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local income taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. For the one-year period ended October 31, 1995, and for the period from January 7, 1991 (date of initial public investment) through October 31, 1995, the average annual total returns were 3.41% and 2.89%, respectively for Cash Series Shares. For the one-year period ended October 31, 1995, and for the period from September 10, 1990 (date of initial public investment) through October 31, 1995, the average annual total returns were 3.82% and 3.46%, respectively, for Institutional Shares. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: O LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. o MONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1994, Federated Investors managed more than $31 billion in assets across approximately 43 money market funds, including 17 government, 8 prime and 18 municipal with assets approximating $17 billion, $7.4 billion and $6.6 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $2 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. *Source: Investment Company Institute TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity concerns and market access risks unique to notes. SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus sign (+) designation. SP-2 Satisfactory capacity to pay principal and interest. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a variable rate demand feature. The first rating (long- term rating) addresses the likelihood of repayment of principal and interest when due, and the second rating (short-term rating) describes the demand characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. LONG-TERM DEBT RATINGS AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rate "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATINGS Moody's Investor Service, Inc. (Moody's) short-term ratings are designated Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG ratings is to provide investors with a simple system by which the relative investment qualities of short-term obligations may be evaluated. MIG1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad based access to the market for refinancing. MIG2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. In this case, two ratings are usually assigned, (for example, AAA/VMIG-1); the first representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the second representing an evaluation of the degree of risk associated with the demand feature. The VMIG rating can be assigned a 1 or 2 designation using the same definitions described above for the MIG rating. COMMERCIAL PAPER (CP) RATINGS P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well established industries, high rates of return on funds employed, conservative capitalization structure with moderate reliance on debt and ample asset protection, broad margins in earning coverage of fixed financial charges and high internal cash generation, well-established access to a range of financial markets and assured sources of alternate liquidity P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. LONG-TERM DEBT RATINGS AAA Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes is can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long- term risks appear somewhat larger than in AAA securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. NR Indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P or Moody's with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated A-1 or P-1. NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated "AAA" by S&P or "AAA" by Moody's. NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated "AA" by S&P or "AA" by Moody's. NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated "A" by S&P or Moody's. Cusip 314229873 Cusip 314229402 NEW JERSEY MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS The Institutional Service Shares of New Jersey Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term New Jersey municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of New Jersey, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SERVICE SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 New Jersey Municipal Securities 6 Investment Risks 6 Non-Diversification 6 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Institutional Service Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 10 - ------------------------------------------------------ Special Purchase Features 10 HOW TO REDEEM SHARES 11 - ------------------------------------------------------ Special Redemption Features 12 ACCOUNT AND SHARE INFORMATION 12 - ------------------------------------------------------ TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 State and Local Taxes 14 OTHER CLASSES OF SHARES 14 - ------------------------------------------------------ PERFORMANCE INFORMATION 15 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SHARES 16 - ------------------------------------------------------ FINANCIAL STATEMENTS 17 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 29 - ------------------------------------------------------ ADDRESSES 30 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................................. None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)................................................. None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................... None Redemption Fee (as a percentage of amount redeemed, if applicable).................... None Exchange Fee.......................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)..................................................... 0.19% 12b-1 Fee (after waiver) (2).......................................................... 0.00% Total Other Expenses.................................................................. 0.46% Shareholder Services Fee (after waiver) (3)................................ 0.15% Total Operating Expenses (4)................................................... 0.65%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The maximum 12b-1 fee is 0.10%. (3) The maximum shareholder services fee is 0.25%. (4) The total operating expenses would have been 1.06% absent the voluntary waivers of a portion of the management fee, 12b-1 fee and a portion of the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Service Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information". Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - --------------------------------------------------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period........ $7 $21 $36 $ 81
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. NEW JERSEY MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants, on page 29.
YEAR ENDED OCTOBER 31, ----------------------------------------------- 1995 1994 1993 1992 1991(A) ----- ----- ----- ----- ------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 - --------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------- Net investment income 0.03 0.02 0.02 0.03 0.04 - --------------------------------------------- LESS DISTRIBUTIONS - --------------------------------------------- Distributions from net investment income (0.03) (0.02) (0.02) (0.03) (0.04) - --------------------------------------------- ----- ----- ----- ----- ------ NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 - --------------------------------------------- ----- ----- ----- ----- ------ TOTAL RETURN (B) 3.36% 2.16% 2.12% 2.86% 3.82% - --------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------- Expenses 0.65% 0.65% 0.56% 0.55% 0.35%* - --------------------------------------------- Net investment income 3.28% 2.19% 2.08% 2.69% 4.11%* - --------------------------------------------- Expense waiver/reimbursement (c) 0.41% 0.41% 0.45% 0.51% 0.69%* - --------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------- Net assets, end of period (000 omitted) $29,81 $36,70 $21,00 $26,84 $17,709 - ---------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from December 13, 1990 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Trustees have established two classes of shares known as Institutional Service Shares and Institutional Shares. This prospectus relates only to Institutional Service Shares of the Fund, which are designed primarily for financial institutions acting in an agency capacity as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term New Jersey municipal securities. The Fund may not be a suitable investment for retirement plans or for non-New Jersey taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and New Jersey state income tax consistent with stability of principal and liquidity. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of New Jersey municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and New Jersey state income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of New Jersey and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers ("New Jersey Municipal Securities"). Examples of New Jersey Municipal Securities include, but are not limited to: - tax and revenue anticipation notes ("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 debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in New Jersey Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying New Jersey Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain New Jersey Municipal Securities is subject to the federal alternative minimum tax. NEW JERSEY MUNICIPAL SECURITIES New Jersey Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. New Jersey Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of New Jersey Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on New Jersey Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of New Jersey Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of New Jersey Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in New Jersey Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these New Jersey Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of New Jersey Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES Federated Securities Corp. is the principal distributor for Institutional Service Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"), the distributor may be paid a fee in an amount computed at an annual rate of .10 of 1% of the average daily net asset value of Institutional Service Shares to finance any activity which is principally intended to result in the sale of shares subject to the Distribution Plan. The Fund does not currently make payments to the distributor or charge a fee under the Distribution Plan and shareholders will be notified if the Fund intends to charge a fee under the Distribution Plan. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide services or distribution-related 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 entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up .25 of 1% of the average daily net asset value of Institutional Service Shares to obtain certain personal services for shareholders and for the maintenance of shareholder accounts. Federated Shareholders Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. With respect to Institutional Service Shares, in addition to payments made pursuant to the Distribution Plan and Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance will be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS - --------------------- ----------------------------------- .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of Institutional Service Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $25,000 or more within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: New Jersey Municipal Cash Trust, Institutional Service Shares; Fund Number (This number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to New Jersey Municipal Cash Trust Institutional Service Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If shares certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. The check writing service allows shareholders to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. As of December 4, 1995, National Westminster Bank NJ, Jersey City, NJ, owned 40.78% of the voting securities of the Fund's Institutional Shares and Fiduciary Trust Co. International, New York, NY, owned 33.94% of the voting securities of the Fund's Institutional Service Shares, and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than New Jersey. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. NEW JERSEY TAXES. Under existing New Jersey laws, distributions made by the Fund will not be subject to New Jersey income taxes to the extent that such dividends qualify as exempt interest dividends under the Internal Revenue Code, and represent (i) interest or gain from obligations issued by or on behalf of the State of New Jersey or any county, municipality, school or other district agency, authority, commission, instrumentality, public corporation, body corporate and politic or political subdivision of New Jersey; or (ii) interest or gain from obligations (such as obligations of the United States) that are statutorily free from New Jersey taxation under federal or New Jersey state laws. Conversely, to the extent that the distributions made by the Fund are derived from other types of obligations, such dividends will be subject to New Jersey personal income taxes. Distributions received by a corporate shareholder from the Fund will not be exempt from New Jersey corporation business taxes or New Jersey corporation business taxes or New Jersey corporation income taxes. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers another class of shares called Institutional Shares that are sold primarily to financial institutions acting in a fiduciary capacity. Institutional Shares are sold at net asset value and are subject to a Shareholder Services Agreement. Investments in Institutional Shares are subject to a minimum initial investment of $25,000 within a 90-day period. Institutional Service Shares and Institutional Shares are subject to certain of the same expenses. Expense differences, however, between Institutional Service Shares and Institutional Shares may affect the performance of each class. To obtain more information and a prospectus for Institutional Shares, investors may call 1-800-235-4669. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield for shares. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the shares' tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. NEW JERSEY MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 29.
YEAR ENDED OCTOBER 31, ------------------------------------------------ 1995 1994 1993** 1992 1991(A) ----- ----- ------ ----- ------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 - ------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------- Net investment income 0.03 0.02 0.02 0.03 0.04 - ------------------------------------------- LESS DISTRIBUTIONS - ------------------------------------------- Distributions from net investment income (0.03) (0.02) (0.02 ) (0.03) (0.04) - ------------------------------------------- ----- ----- ------ ----- ------ NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 - ------------------------------------------- ----- ----- ------ ----- ------ TOTAL RETURN (B) 3.46% 2.26% 2.22 % 2.96% 3.87% - ------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ------------------------------------------- Expenses 0.55% 0.54% 0.46 % 0.45% 0.27%* - ------------------------------------------- Net investment income 3.41% 2.22% 2.19 % 2.86% 4.19%* - ------------------------------------------- Expense waiver/reimbursement (c) 0.41% 0.39% 0.45 % 0.51% 0.67%* - ------------------------------------------- SUPPLEMENTAL DATA - ------------------------------------------- Net assets, end of period (000 omitted) $86,94 $62,98 $66,34 $57,65 $39,423 - -------------------------------------------
* Computed on an annualized basis. ** Prior to October 6, 1993, the Fund provided three classes of shares. (a) Reflects operations for the period from December 13, 1990 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--99.2% - ----------------------------------------------------------------------- NEW JERSEY--95.8% ------------------------------------------------------- $ 700,000 Atlantic County, NJ Improvement Authority Weekly VRDNs (Marine Midland Bank N.A., Buffalo, NY LOC) VMIG1 $ 700,000 ------------------------------------------------------- 1,801,896 Atlantic Highlands, NJ, 5.125% BANs, 11/17/1995 NR(3) 1,802,216 ------------------------------------------------------- 1,925,000 Bordentown, NJ, 4.15% BANs, 6/27/1996 NR 1,926,802 ------------------------------------------------------- 1,000,000 Florence Township, NJ, 5.25% BANs, 2/15/1996 NR(3) 1,001,035 ------------------------------------------------------- 4,500,000 Galloway Township, NJ, 5.25% BANs, 3/14/1996 NR(3) 4,505,882 ------------------------------------------------------- 1,850,000 Hopewell Township, NJ, 4.15% BANs, 8/27/1996 NR 1,852,174 ------------------------------------------------------- 1,961,389 Long Hill Township, NJ, 4.00% BANs, 7/19/1996 NR 1,964,891 ------------------------------------------------------- 1,800,000 Mercer County, NJ Improvement Authority Weekly VRDNs (Mercer County, NJ Pooled Governmental Loan Program)/(Credit Suisse, Zurich LOC) A-1+ 1,800,000 ------------------------------------------------------- 1,500,000 Middlesex County, NJ PCFA Weekly VRDNs (FMC Gold Co.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) P-1 1,500,000 ------------------------------------------------------- 1,500,000 Montclair Township, NJ, 4.25% BANs, 6/28/1996 NR(3) 1,504,688 ------------------------------------------------------- 3,000,000 Moorestown Township, NJ, 3.99% BANs, 9/5/1996 NR(3) 3,000,770 ------------------------------------------------------- 2,500,000 New Jersey EDA Weekly VRDNs (Franciscan Oaks)/ (Bank of Scotland, Edinburgh LOC) A-1+ 2,500,000 ------------------------------------------------------- 5,628,000 New Jersey EDA Weekly VRDNs (Meridan Health Care)/ (First National Bank of Maryland, Baltimore LOC) P-1 5,628,000 ------------------------------------------------------- 4,323,000 New Jersey EDA Weekly VRDNs (Molins Machines)/ (Nationsbank of Virginia, N.A. LOC) P-1 4,323,000 ------------------------------------------------------- 1,445,000 New Jersey EDA Weekly VRDNs (Nash Group)/ (Chemical Bank, New York LOC) A-1 1,445,000 ------------------------------------------------------- 8,050,000 New Jersey EDA Weekly VRDNs (YA-YWHA of Bergen County, NJ)/(Bank of New York, New York LOC) VMIG1 8,050,000 ------------------------------------------------------- 1,600,000 New Jersey EDA, (1994 Series A), 4.35% TOBs (A.F.L. Quality, Inc.)/(National Westminster Bank, PLC, London LOC), Optional Tender 7/1/1996 AA- 1,600,000 -------------------------------------------------------
NEW JERSEY MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE --------- ------- ----- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- NEW JERSEY--CONTINUED ------------------------------------------------------- $ 560,000 New Jersey EDA, (1994 Series B), 4.35% TOBs (Two Univac, L.L.C.)/(National Westminster Bank, PLC, London LOC), Optional Tender 7/1/1996 SP-1+ $ 560,000 ------------------------------------------------------- 2,700,000 New Jersey EDA, (Series 1984) Weekly VRDNs (Burmah- Castrol Inc. Project)/(Barclays Bank PLC, London LOC) A-1+ 2,700,000 ------------------------------------------------------- 4,200,000 New Jersey EDA, (Series 1986) Weekly VRDNs (Ridgefield Associates)/(Bank of Tokyo Ltd., Tokyo LOC) P-1 4,200,000 ------------------------------------------------------- 350,000 New Jersey EDA, (Series 1987G) Weekly VRDNs (W.Y. Urban Renewal)/(National Westminster Bank, PLC, London LOC) VMIG1 350,000 ------------------------------------------------------- 2,400,000 New Jersey EDA, (Series 1988-F) Weekly VRDNs (Lamington Corners Associates)/(First Fidelity Bank, NA, New Jersey LOC) VMIG1 2,400,000 ------------------------------------------------------- 1,500,000 New Jersey EDA, (Series 1991), 3.75% CP (Chambers Cogeneration Ltd Partnership)/(Swiss Bank Corp., Basle LOC), Mandatory Tender 1/22/1996 A-1+ 1,500,000 ------------------------------------------------------- 1,180,000 New Jersey EDA, (Series 1992 Q) Weekly VRDNs (Physical Accoustics, Inc.)/(Banque Nationale de Paris LOC) VMIG1 1,180,000 ------------------------------------------------------- 1,170,000 New Jersey EDA, (Series 1992 Z) Weekly VRDNs (West-Ward Pharmaceuticals)/(Banque Nationale de Paris LOC) VMIG1 1,170,000 ------------------------------------------------------- 1,080,000 New Jersey EDA, (Series 1992D-1) Weekly VRDNs (Danlin Corp.)/(Banque Nationale de Paris LOC) VMIG1 1,080,000 ------------------------------------------------------- 2,285,000 New Jersey EDA, (Series 1992I-1) Weekly VRDNs (Geshem Realty)/(Banque Nationale de Paris LOC) VMIG1 2,285,000 ------------------------------------------------------- 3,010,000 New Jersey EDA, (Series 1992L) Weekly VRDNs (Kent Place School)/(Banque Nationale de Paris LOC) VMIG1 3,010,000 ------------------------------------------------------- 1,600,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Filtra Corporation Project)/(Chemical Bank, New York LOC) P-1 1,600,000 ------------------------------------------------------- 3,200,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Hillcrest Health Service System, Inc.)/(Industrial Bank of Japan Ltd., Tokyo LOC) P-1 3,200,000 -------------------------------------------------------
NEW JERSEY MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE --------- ------- ----- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- NEW JERSEY--CONTINUED ------------------------------------------------------- $ 2,000,000 New Jersey EDA, (Series 1995) Weekly VRDNs (International Vitamin Corporation Project)/ (National Westminster Bank, PLC, London LOC) P-1 $ 2,000,000 ------------------------------------------------------- 1,250,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Manhattan Bagel Co., Inc.)/(First Fidelity Bank, NA, New Jersey LOC) P-1 1,250,000 ------------------------------------------------------- 1,005,000 New Jersey EDA, (Series W) Weekly VRDNs (Datatec Industries, Inc.)/(Banque Nationale de Paris LOC) P-1 1,005,000 ------------------------------------------------------- 2,815,000 New Jersey EDA, Adjustable/Fixed Rate Economic Development Bonds Weekly VRDNs (Atlantic States Cast Iron Pipe Company)/(Amsouth Bank N.A., Birmingham LOC) VMIG1 2,815,000 ------------------------------------------------------- 1,400,000 New Jersey EDA, Economic Development Bonds, 1987 Project Weekly VRDNs (United Jewish Community of Bergen County)/(Bank of New York, New York LOC) P-1 1,400,000 ------------------------------------------------------- 1,000,000 New Jersey EDA, Natural Gas Facilities Refunding Revenue Bonds (Series 1995A) Daily VRDNs (New Jersey Natural Gas Company)/(AMBAC INS)/(Union Bank of Switzerland, Zurich LIQ) VMIG1 1,000,000 ------------------------------------------------------- 3,120,000 New Jersey EDA, Pollution Control Revenue Refunding Bonds (Series 1995A), 3.60% CP (Public Service Electric and Gas Company)/(MBIA Insurance Corporation INS), Mandatory Tender 11/27/1995 A-1+ 3,120,000 ------------------------------------------------------- 3,055,000 New Jersey Housing & Mortgage Financing Authority, (Series 1989-D), 4.00% TOBs (MBIA Insurance Corporation INS)/(Citibank NA, New York LIQ), Optional Tender 4/1/1996 NR(1) 3,055,000 ------------------------------------------------------- 755,000 New Jersey Housing & Mortgage Financing Authority, 4.00% TOBs (MBIA Insurance Corporation INS)/ (Citibank NA, New York LIQ), Optional Tender 4/1/1996 NR(1) 755,000 ------------------------------------------------------- 4,300,000 (a) New Jersey State Transportation Trust Fund Agency, (Series 1993A) Weekly VRDNs (FSA INS)/(Merrill Lynch Capital Services, Inc. LIQ) VMIG1 4,300,000 -------------------------------------------------------
NEW JERSEY MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE --------- ------- ----- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- NEW JERSEY--CONTINUED ------------------------------------------------------- $ 3,000,000 Port Authority of New York and New Jersey, (Series 3) Weekly VRDNs (KIAC Partners)/ (Deutsche Bank, AG LOC) P-1 $ 3,000,000 ------------------------------------------------------- 10,000,000 Port Authority of New York and New Jersey, (Series 1991-4) Weekly VRDNs 10,000,000 ------------------------------------------------------- 1,000,000 Salem County, NJ Pollution Control Financing Authority, (Series 1988A), 3.50% CP (Philadelphia Electric Co.)/ (FGIC INS), Mandatory Tender 11/13/1995 A-1+ 1,000,000 ------------------------------------------------------- 2,900,000 South Plainfield, NJ, 3.95% BANs, 7/26/1996 NR 2,901,001 ------------------------------------------------------- 3,200,421 West Milford Township, NJ, 5.50% BANs, 1/26/1996 NR 3,201,846 ------------------------------------------------------- 750,000 Woodbury, NJ, 5.20% BANs, 4/12/1996 NR 751,273 ------------------------------------------------------- ------------ Total 111,893,578 ------------------------------------------------------- ------------ PUERTO RICO--3.4% ------------------------------------------------------- 4,000,000 Puerto Rico Government Development Bank, 3.80% CP, Mandatory Tender 12/8/1995 A-1+ 4,000,000 ------------------------------------------------------- ------------ TOTAL INVESTMENTS AT AMORTIZED COST (B) $115,893,578 ------------------------------------------------------- ------------
Securities that are subject to Alternative Minimum Tax represent 35.1% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. These securities have been determined to be liquid under criteria established by the Board of Trustees at the end of the period, this security amounted to $4,300,000 which represents 3.7% of net assets. (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($116,761,516) at October 31, 1995. NEW JERSEY MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronyms are used throughout this portfolio: AMBAC --American Municipal Bond Assurance Corporation BANs --Bond Anticipation Notes CP --Commercial Paper EDA --Economic Development Authority FGIC --Financial Guaranty Insurance Company FSA --Financial Security Assurance INS --Insurance LIQ --Liquidity Agreement LOC --Letter of Credit MBIA --Municipal Bond Investors Assurance PLC --Public Limited Company TOBs --Tender Option Bonds VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $115,893,578 - ------------------------------------------------------------------------------- Cash 241,626 - ------------------------------------------------------------------------------- Income receivable 945,798 - ------------------------------------------------------------------------------- Receivable for shares sold 1,476 - ------------------------------------------------------------------------------- ------------ Total assets 117,082,478 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for shares redeemed $ 1,938 - -------------------------------------------------------------------- Income distribution payable 287,785 - -------------------------------------------------------------------- Accrued expenses 31,239 - -------------------------------------------------------------------- -------- Total liabilities 320,962 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 116,761,516 shares outstanding $116,761,516 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------- INSTITUTIONAL SHARES: - ------------------------------------------------------------------------------- $86,944,238 / 86,944,238 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------ INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------- $29,817,278 / 29,817,278 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ------------------------------------------------------------------------------------ Interest $4,265,077 - ------------------------------------------------------------------------------------ EXPENSES: - ------------------------------------------------------------------------------------ Investment advisory fee $ 431,160 - ---------------------------------------------------------------------- Administrative personnel and services fee 155,000 - ---------------------------------------------------------------------- Custodian fees 27,873 - ---------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 35,329 - ---------------------------------------------------------------------- Directors'/Trustees' fees 1,242 - ---------------------------------------------------------------------- Auditing fees 14,849 - ---------------------------------------------------------------------- Legal fees 2,454 - ---------------------------------------------------------------------- Portfolio accounting fees 39,750 - ---------------------------------------------------------------------- Distribution services fee--Institutional Service Shares 27,107 - ---------------------------------------------------------------------- Shareholder services fee--Institutional Shares 201,709 - ---------------------------------------------------------------------- Shareholder services fee--Institutional Service Shares 67,766 - ---------------------------------------------------------------------- Share registration costs 36,077 - ---------------------------------------------------------------------- Printing and postage 9,261 - ---------------------------------------------------------------------- Insurance premiums 5,936 - ---------------------------------------------------------------------- Taxes 821 - ---------------------------------------------------------------------- Miscellaneous 7,333 - ---------------------------------------------------------------------- ---------- Total expenses 1,063,667 - ---------------------------------------------------------------------- Waivers-- - ---------------------------------------------------------------------- Waiver of investment advisory fee $(228,371) - ---------------------------------------------------------- Waiver of distribution services fee--Institutional Service Shares (27,107) - ---------------------------------------------------------- Waiver of shareholder services fee--Institutional Shares (159,821) - ---------------------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (26,242) - ---------------------------------------------------------- --------- Total waivers (441,541) - ---------------------------------------------------------------------- ---------- Net expenses 622,126 - ------------------------------------------------------------------------------------ ---------- Net investment income $3,642,951 - ------------------------------------------------------------------------------------ ----------
(See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ----------------------------- 1995 1994 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - ---------------------------------------------------------------- OPERATIONS-- - ---------------------------------------------------------------- Net investment income $ 3,642,951 $ 2,157,116 - ---------------------------------------------------------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ---------------------------------------------------------------- Distributions from net investment income - ---------------------------------------------------------------- Institutional Shares (2,752,708) (1,478,776) - ---------------------------------------------------------------- Institutional Service Shares (890,243) (678,340) - ---------------------------------------------------------------- ------------- ------------- Change in net assets resulting from distributions to shareholders (3,642,951) (2,157,116) - ---------------------------------------------------------------- ------------- ------------- SHARE TRANSACTIONS-- - ---------------------------------------------------------------- Proceeds from sale of shares 425,149,193 344,046,340 - ---------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 545,318 426,614 - ---------------------------------------------------------------- Cost of shares redeemed (408,621,137) (332,135,904) - ---------------------------------------------------------------- ------------- ------------- Change in net assets resulting from share transactions 17,073,374 12,337,050 - ---------------------------------------------------------------- ------------- ------------- Change in net assets 17,073,374 12,337,050 - ---------------------------------------------------------------- NET ASSETS: - ---------------------------------------------------------------- Beginning of period 99,688,142 87,351,092 - ---------------------------------------------------------------- ------------- ------------- End of period $ 116,761,516 $ 99,688,142 - ---------------------------------------------------------------- ------------- -------------
(See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of New Jersey Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers two classes of shares: Institutional Shares and Institutional Service Shares. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 66.9% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or NEW JERSEY MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- supported (backed) by a letter of credit for any one institution or agency does not exceed 8.4% of total investments. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1995 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST -------------------------------------------------- ---------------- ---------------- New Jersey State Transportation Trust Fund Agency, (Series 1993A) Weekly VRDNs (FSA INS)/(Merrill Lynch Capital Services, Inc. LIQ) 10/4/95 $4,300,000
OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1995, capital paid-in aggregated $116,761,516. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, ---------------------------- INSTITUTIONAL SHARES 1995 1994 - ----------------------------------------------------------------- ------------ ------------ Shares sold 334,240,209 240,111,228 - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 15,613 2,995 - ----------------------------------------------------------------- Shares redeemed (310,295,248) (243,476,200) - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional share transactions 23,960,574 (3,361,977) - ----------------------------------------------------------------- ------------ ------------
NEW JERSEY MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ---------------------------- INSTITUTIONAL SERVICE SHARES 1995 1994 - ----------------------------------------------------------------- ------------ ------------ Shares sold 90,908,984 103,935,112 - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 529,705 423,619 - ----------------------------------------------------------------- Shares redeemed (98,325,889) (88,659,704) - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional Service share transactions (6,887,200) 15,699,027 - ----------------------------------------------------------------- ------------ ------------ Net change resulting from share transactions 17,073,374 12,337,050 - ----------------------------------------------------------------- ------------ ------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will reimburse Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Institutional Service Shares. The Plan provides that the Fund may incur distribution expenses up to .10 of 1% of the average daily net assets of the Institutional Service Shares, annually, to reimburse FSC. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net assets of the Fund for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntarily waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. NEW JERSEY MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses of $61,531 and start-up administrative service expenses of $16,639 were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organizational and start-up administrative expenses at an annual rate of .005 of 1% and .01% of 1% of average daily net assets, respectively, until expenses initially borne are fully reimbursed or the expiration of five years after December 10, 1990 (the date the Fund became effective), whichever occurs earlier. For the period ended October 31, 1995, the Fund paid $5,318 and $0, respectively, pursuant to this agreement. INTERFUND TRANSACTIONS--During the period ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common Officers. These transactions were made at current market value pursuant to rule 17a-7 under the Act amounting to $202,035,250 and $189,185,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (New Jersey Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of New Jersey Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights (see pages 2 and 16 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of New Jersey Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 ADDRESSES - -------------------------------------------------------------------------------- New Jersey Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------ Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------ Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------ Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 - ------------------------------------------------------------------------------------------------ Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - ------------------------------------------------------------------------------------------------ Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - ------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NEW JERSEY MUNICIPAL CASH TRUST INSTITUTIONAL SERVICE SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 CUSIP 314229709 0100802A-SS (12/95) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NEW JERSEY MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS The Institutional Shares of New Jersey Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term New Jersey municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of New Jersey, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 New Jersey Municipal Securities 6 Investment Risks 6 Non-Diversification 6 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Institutional Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ HOW TO REDEEM SHARES 10 - ------------------------------------------------------ ACCOUNT AND SHARE INFORMATION 11 - ------------------------------------------------------ TAX INFORMATION 12 - ------------------------------------------------------ Federal Income Tax 12 State and Local Taxes 13 OTHER CLASSES OF SHARES 13 - ------------------------------------------------------ PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SERVICE SHARES 15 - ------------------------------------------------------ FINANCIAL STATEMENTS 16 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 28 - ------------------------------------------------------ ADDRESSES 29 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................................. None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)................................................. None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................... None Redemption Fee (as a percentage of amount redeemed, if applicable).................... None Exchange Fee.......................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)..................................................... 0.19% 12b-1 Fee............................................................................. None Total Other Expenses.................................................................. 0.36% Shareholder Services Fee (after waiver) (2)................................ 0.05% Total Operating Expenses (3)............................................ 0.55%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The maximum shareholder services fee is 0.25%. (3) The total operating expenses would have been 0.96% absent the voluntary waivers of a portion of the management fee and a portion of the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - --------------------------------------------------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period........ $6 $18 $31 $ 69
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. NEW JERSEY MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 28.
YEAR ENDED OCTOBER 31, ------------------------------------------------ 1995 1994 1993** 1992 1991(A) ----- ----- ------ ----- ------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 - ------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------- Net investment income 0.03 0.02 0.02 0.03 0.04 - ------------------------------------------- LESS DISTRIBUTIONS - ------------------------------------------- Distributions from net investment income (0.03) (0.02) (0.02 ) (0.03) (0.04) - ------------------------------------------- ----- ----- ------ ----- ------ NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 - ------------------------------------------- ----- ----- ------ ----- ------ TOTAL RETURN (B) 3.46% 2.26% 2.22 % 2.96% 3.87% - ------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ------------------------------------------- Expenses 0.55% 0.54% 0.46 % 0.45% 0.27%* - ------------------------------------------- Net investment income 3.41% 2.22% 2.19 % 2.86% 4.19%* - ------------------------------------------- Expense waiver/reimbursement (c) 0.41% 0.39% 0.45 % 0.51% 0.67%* - ------------------------------------------- SUPPLEMENTAL DATA - ------------------------------------------- Net assets, end of period (000 omitted) $86,944 $62,984 $66,346 $57,657 $39,423 - -------------------------------------------
* Computed on an annualized basis. ** Prior to October 6, 1993, the Fund provided three classes of shares. (a) Reflects operations for the period from December 13, 1990 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Trustees have established two classes of shares known as Institutional Shares and Institutional Service Shares. This prospectus relates only to Institutional Shares of the Fund, which are designed primarily for financial institutions acting in an agency or fiduciary capacity as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term New Jersey municipal securities. The Fund may not be a suitable investment for retirement plans or for non-New Jersey taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of New Jersey municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of New Jersey and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers ("New Jersey Municipal Securities"). Examples of New Jersey Municipal Securities include, but are not limited to: - tax and revenue anticipation notes ("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 debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in New Jersey Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying New Jersey Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain New Jersey Municipal Securities is subject to the federal alternative minimum tax. NEW JERSEY MUNICIPAL SECURITIES New Jersey Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. New Jersey Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of New Jersey Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on New Jersey Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of New Jersey Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of New Jersey Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in New Jersey Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these New Jersey Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of New Jersey Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of its total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of Institutional Shares, computed at an annual rate, to obtain certain personal services for shareholders and provide maintenance of shareholder accounts ("shareholder services"). From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor may pay financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide certain services to shareholders. These services may include, but are not limited to, distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of shares. Any fees paid for these services by the distributor will be reimbursed by the adviser and not the Fund. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS - --------------------- ----------------------------------- .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of Institutional Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased either by wire or by check. The Fund reserves the right to reject any purchase request. To make a purchase, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken by telephone. The minimum initial investment is $25,000. However, an account may be opened with a smaller amount as long as the minimum is reached within 90 days. Minimum investments will be calculated by combining all accounts maintained with the Fund. Financial institutions may impose different minimum investment requirements on their customers. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as follows: Federated Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: New Jersey Municipal Cash Trust--Institutional Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by mailing a check made payable to New Jersey Municipal Cash Trust--Institutional Shares to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are considered received when payment by check is converted into federal funds. This is normally the next business day after the check is received. SUBACCOUNTING SERVICES. Financial institutions are encouraged to open single master accounts. A subaccounting system is available through the transfer agent to minimize internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Fund shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. State securities laws may require certain financial institutions such as depository institutions to register as dealers. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after Federated Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 p.m. (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 4, 1995, National Westminster Bank NJ, Jersey City, NJ, owned 40.78% of the voting securities of the Fund's Institutional Shares and Fiduciary Trust Co. International, New York, NY, owned 33.94% of the voting securities of the Fund's Institutional Service Shares, and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than New Jersey. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. NEW JERSEY TAXES. Under existing New Jersey laws, distributions made by the Fund will not be subject to New Jersey income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest or gain from obligations issued by or on behalf of the State of New Jersey or any county, municipality, school or other district, agency, authority, commission, instrumentality, public corporation, body corporate and politic or political subdivision of New Jersey; or (ii) interest or gain from obligations (such as obligations of the United States) that are statutorily free from New Jersey taxation under federal or New Jersey state laws. Conversely, to the extent that distributions by the Fund are attributable to other types of obligations, such distributions will be subject to New Jersey income taxes. Distributions received by a corporate shareholder from the Fund will not be exempt from New Jersey Corporation Business Tax or New Jersey Corporation Income Tax. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers another class of shares called Institutional Service Shares. Institutional Service Shares are sold at net asset value primarily to financial institutions acting in an agency or fiduciary capacity and are subject to a minimum initial investment of $25,000 over a 90-day period. All classes are subject to certain of the same expenses. Institutional Service Shares are distributed under a 12b-1 Plan adopted by the Fund and also are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-235-4669. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield for shares. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the shares' tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. NEW JERSEY MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants, on page 28.
YEAR ENDED OCTOBER 31, ----------------------------------------------- 1995 1994 1993 1992 1991(A) ----- ----- ----- ----- ------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 - --------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------- Net investment income 0.03 0.02 0.02 0.03 0.04 - --------------------------------------------- LESS DISTRIBUTIONS - --------------------------------------------- Distributions from net investment income (0.03) (0.02) (0.02) (0.03) (0.04) - --------------------------------------------- ----- ----- ----- ----- ------ NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 - --------------------------------------------- ----- ----- ----- ----- ------ TOTAL RETURN (B) 3.36% 2.16% 2.12% 2.86% 3.82% - --------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------- Expenses 0.65% 0.65% 0.56% 0.55% 0.35%* - --------------------------------------------- Net investment income 3.28% 2.19% 2.08% 2.69% 4.11%* - --------------------------------------------- Expense waiver/reimbursement (c) 0.41% 0.41% 0.45% 0.51% 0.69%* - --------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------- Net assets, end of period (000 omitted) $29,817 $36,704 $21,005 $26,844 $17,709 - ---------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from December 13, 1990 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--99.2% - ----------------------------------------------------------------------- NEW JERSEY--95.8% ------------------------------------------------------- $ 700,000 Atlantic County, NJ Improvement Authority Weekly VRDNs (Marine Midland Bank N.A., Buffalo, NY LOC) VMIG1 $ 700,000 ------------------------------------------------------- 1,801,896 Atlantic Highlands, NJ, 5.125% BANs, 11/17/1995 NR(3) 1,802,216 ------------------------------------------------------- 1,925,000 Bordentown, NJ, 4.15% BANs, 6/27/1996 NR 1,926,802 ------------------------------------------------------- 1,000,000 Florence Township, NJ, 5.25% BANs, 2/15/1996 NR(3) 1,001,035 ------------------------------------------------------- 4,500,000 Galloway Township, NJ, 5.25% BANs, 3/14/1996 NR(3) 4,505,882 ------------------------------------------------------- 1,850,000 Hopewell Township, NJ, 4.15% BANs, 8/27/1996 NR 1,852,174 ------------------------------------------------------- 1,961,389 Long Hill Township, NJ, 4.00% BANs, 7/19/1996 NR 1,964,891 ------------------------------------------------------- 1,800,000 Mercer County, NJ Improvement Authority Weekly VRDNs (Mercer County, NJ Pooled Governmental Loan Program)/(Credit Suisse, Zurich LOC) A-1+ 1,800,000 ------------------------------------------------------- 1,500,000 Middlesex County, NJ PCFA Weekly VRDNs (FMC Gold Co.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) P-1 1,500,000 ------------------------------------------------------- 1,500,000 Montclair Township, NJ, 4.25% BANs, 6/28/1996 NR(3) 1,504,688 ------------------------------------------------------- 3,000,000 Moorestown Township, NJ, 3.99% BANs, 9/5/1996 NR(3) 3,000,770 ------------------------------------------------------- 2,500,000 New Jersey EDA Weekly VRDNs (Franciscan Oaks)/ (Bank of Scotland, Edinburgh LOC) A-1+ 2,500,000 ------------------------------------------------------- 5,628,000 New Jersey EDA Weekly VRDNs (Meridan Health Care)/ (First National Bank of Maryland, Baltimore LOC) P-1 5,628,000 ------------------------------------------------------- 4,323,000 New Jersey EDA Weekly VRDNs (Molins Machines)/ (Nationsbank of Virginia, N.A. LOC) P-1 4,323,000 ------------------------------------------------------- 1,445,000 New Jersey EDA Weekly VRDNs (Nash Group)/ (Chemical Bank, New York LOC) A-1 1,445,000 ------------------------------------------------------- 8,050,000 New Jersey EDA Weekly VRDNs (YA-YWHA of Bergen County, NJ)/(Bank of New York, New York LOC) VMIG1 8,050,000 -------------------------------------------------------
NEW JERSEY MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE --------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- NEW JERSEY--CONTINUED ------------------------------------------------------- $ 1,600,000 New Jersey EDA, (1994 Series A), 4.35% TOBs (A.F.L. Quality, Inc.)/(National Westminster Bank, PLC, London LOC), Optional Tender 7/1/1996 AA- $ 1,600,000 ------------------------------------------------------- 560,000 New Jersey EDA, (1994 Series B), 4.35% TOBs (Two Univac, L.L.C.)/(National Westminster Bank, PLC, London LOC), Optional Tender 7/1/1996 SP-1+ 560,000 ------------------------------------------------------- 2,700,000 New Jersey EDA, (Series 1984) Weekly VRDNs (Burmah- Castrol Inc. Project)/(Barclays Bank PLC, London LOC) A-1+ 2,700,000 ------------------------------------------------------- 4,200,000 New Jersey EDA, (Series 1986) Weekly VRDNs (Ridgefield Associates)/(Bank of Tokyo Ltd., Tokyo LOC) P-1 4,200,000 ------------------------------------------------------- 350,000 New Jersey EDA, (Series 1987G) Weekly VRDNs (W.Y. Urban Renewal)/(National Westminster Bank, PLC, London LOC) VMIG1 350,000 ------------------------------------------------------- 2,400,000 New Jersey EDA, (Series 1988-F) Weekly VRDNs (Lamington Corners Associates)/(First Fidelity Bank, NA, New Jersey LOC) VMIG1 2,400,000 ------------------------------------------------------- 1,500,000 New Jersey EDA, (Series 1991), 3.75% CP (Chambers Cogeneration Ltd Partnership)/(Swiss Bank Corp., Basle LOC), Mandatory Tender 1/22/1996 A-1+ 1,500,000 ------------------------------------------------------- 1,180,000 New Jersey EDA, (Series 1992 Q) Weekly VRDNs (Physical Accoustics, Inc.)/(Banque Nationale de Paris LOC) VMIG1 1,180,000 ------------------------------------------------------- 1,170,000 New Jersey EDA, (Series 1992 Z) Weekly VRDNs (West-Ward Pharmaceuticals)/(Banque Nationale de Paris LOC) VMIG1 1,170,000 ------------------------------------------------------- 1,080,000 New Jersey EDA, (Series 1992D-1) Weekly VRDNs (Danlin Corp.)/(Banque Nationale de Paris LOC) VMIG1 1,080,000 ------------------------------------------------------- 2,285,000 New Jersey EDA, (Series 1992I-1) Weekly VRDNs (Geshem Realty)/(Banque Nationale de Paris LOC) VMIG1 2,285,000 ------------------------------------------------------- 3,010,000 New Jersey EDA, (Series 1992L) Weekly VRDNs (Kent Place School)/(Banque Nationale de Paris LOC) VMIG1 3,010,000 ------------------------------------------------------- 1,600,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Filtra Corporation Project)/(Chemical Bank, New York LOC) P-1 1,600,000 -------------------------------------------------------
NEW JERSEY MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE --------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- NEW JERSEY--CONTINUED ------------------------------------------------------- $ 3,200,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Hillcrest Health Service System, Inc.)/(Industrial Bank of Japan Ltd., Tokyo LOC) P-1 $ 3,200,000 ------------------------------------------------------- 2,000,000 New Jersey EDA, (Series 1995) Weekly VRDNs (International Vitamin Corporation Project)/ (National Westminster Bank, PLC, London LOC) P-1 2,000,000 ------------------------------------------------------- 1,250,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Manhattan Bagel Co., Inc.)/(First Fidelity Bank, NA, New Jersey LOC) P-1 1,250,000 ------------------------------------------------------- 1,005,000 New Jersey EDA, (Series W) Weekly VRDNs (Datatec Industries, Inc.)/(Banque Nationale de Paris LOC) P-1 1,005,000 ------------------------------------------------------- 2,815,000 New Jersey EDA, Adjustable/Fixed Rate Economic Development Bonds Weekly VRDNs (Atlantic States Cast Iron Pipe Company)/(Amsouth Bank N.A., Birmingham LOC) VMIG1 2,815,000 ------------------------------------------------------- 1,400,000 New Jersey EDA, Economic Development Bonds, 1987 Project Weekly VRDNs (United Jewish Community of Bergen County)/(Bank of New York, New York LOC) P-1 1,400,000 ------------------------------------------------------- 1,000,000 New Jersey EDA, Natural Gas Facilities Refunding Revenue Bonds (Series 1995A) Daily VRDNs (New Jersey Natural Gas Company)/(AMBAC INS)/(Union Bank of Switzerland, Zurich LIQ) VMIG1 1,000,000 ------------------------------------------------------- 3,120,000 New Jersey EDA, Pollution Control Revenue Refunding Bonds (Series 1995A), 3.60% CP (Public Service Electric and Gas Company)/(MBIA Insurance Corporation INS), Mandatory Tender 11/27/1995 A-1+ 3,120,000 ------------------------------------------------------- 3,055,000 New Jersey Housing & Mortgage Financing Authority, (Series 1989-D), 4.00% TOBs (MBIA Insurance Corporation INS)/(Citibank NA, New York LIQ), Optional Tender 4/1/1996 NR(1) 3,055,000 ------------------------------------------------------- 755,000 New Jersey Housing & Mortgage Financing Authority, 4.00% TOBs (MBIA Insurance Corporation INS)/ (Citibank NA, New York LIQ), Optional Tender 4/1/1996 NR(1) 755,000 -------------------------------------------------------
NEW JERSEY MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE --------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- NEW JERSEY--CONTINUED ------------------------------------------------------- $ 4,300,000 (a) New Jersey State Transportation Trust Fund Agency, (Series 1993A) Weekly VRDNs (FSA INS)/(Merrill Lynch Capital Services, Inc. LIQ) VMIG1 $ 4,300,000 ------------------------------------------------------- 3,000,000 Port Authority of New York and New Jersey, (Series 3) Weekly VRDNs (KIAC Partners)/ (Deutsche Bank, AG LOC) P-1 3,000,000 ------------------------------------------------------- 10,000,000 Port Authority of New York and New Jersey, (Series 1991-4) Weekly VRDNs 10,000,000 ------------------------------------------------------- 1,000,000 Salem County, NJ Pollution Control Financing Authority, (Series 1988A), 3.50% CP (Philadelphia Electric Co.)/ (FGIC INS), Mandatory Tender 11/13/1995 A-1+ 1,000,000 ------------------------------------------------------- 2,900,000 South Plainfield, NJ, 3.95% BANs, 7/26/1996 NR 2,901,001 ------------------------------------------------------- 3,200,421 West Milford Township, NJ, 5.50% BANs, 1/26/1996 NR 3,201,846 ------------------------------------------------------- 750,000 Woodbury, NJ, 5.20% BANs, 4/12/1996 NR 751,273 ------------------------------------------------------- ------------ Total 111,893,578 ------------------------------------------------------- ------------ PUERTO RICO--3.4% ------------------------------------------------------- 4,000,000 Puerto Rico Government Development Bank, 3.80% CP, Mandatory Tender 12/8/1995 A-1+ 4,000,000 ------------------------------------------------------- ------------ TOTAL INVESTMENTS AT AMORTIZED COST (B) $115,893,578 ------------------------------------------------------- ------------
Securities that are subject to Alternative Minimum Tax represent 35.1% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. These securities have been determined to be liquid under criteria established by the Board of Trustees at the end of the period, this security amounted to $4,300,000 which represents 3.7% of net assets. (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($116,761,516) at October 31, 1995. NEW JERSEY MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronyms are used throughout this portfolio: AMBAC --American Municipal Bond Assurance Corporation BANs --Bond Anticipation Notes CP --Commercial Paper EDA --Economic Development Authority FGIC --Financial Guaranty Insurance Company FSA --Financial Security Assurance INS --Insurance LIQ --Liquidity Agreement LOC --Letter of Credit MBIA --Municipal Bond Investors Assurance PLC --Public Limited Company TOBs --Tender Option Bonds VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $115,893,578 - ------------------------------------------------------------------------------- Cash 241,626 - ------------------------------------------------------------------------------- Income receivable 945,798 - ------------------------------------------------------------------------------- Receivable for shares sold 1,476 - ------------------------------------------------------------------------------- ------------ Total assets 117,082,478 - ------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------- Payable for shares redeemed $ 1,938 - -------------------------------------------------------------------- Income distribution payable 287,785 - -------------------------------------------------------------------- Accrued expenses 31,239 - -------------------------------------------------------------------- -------- Total liabilities 320,962 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 116,761,516 shares outstanding $116,761,516 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------- INSTITUTIONAL SHARES: - ------------------------------------------------------------------------------- $86,944,238 / 86,944,238 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------ INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------- $29,817,278 / 29,817,278 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ------------------------------------------------------------------------------------ Interest $4,265,077 - ------------------------------------------------------------------------------------ EXPENSES: - ------------------------------------------------------------------------------------ Investment advisory fee $ 431,160 - ---------------------------------------------------------------------- Administrative personnel and services fee 155,000 - ---------------------------------------------------------------------- Custodian fees 27,873 - ---------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 35,329 - ---------------------------------------------------------------------- Directors'/Trustees' fees 1,242 - ---------------------------------------------------------------------- Auditing fees 14,849 - ---------------------------------------------------------------------- Legal fees 2,454 - ---------------------------------------------------------------------- Portfolio accounting fees 39,750 - ---------------------------------------------------------------------- Distribution services fee--Institutional Service Shares 27,107 - ---------------------------------------------------------------------- Shareholder services fee--Institutional Shares 201,709 - ---------------------------------------------------------------------- Shareholder services fee--Institutional Service Shares 67,766 - ---------------------------------------------------------------------- Share registration costs 36,077 - ---------------------------------------------------------------------- Printing and postage 9,261 - ---------------------------------------------------------------------- Insurance premiums 5,936 - ---------------------------------------------------------------------- Taxes 821 - ---------------------------------------------------------------------- Miscellaneous 7,333 - ---------------------------------------------------------------------- ---------- Total expenses 1,063,667 - ---------------------------------------------------------------------- Waivers-- - ---------------------------------------------------------- Waiver of investment advisory fee $(228,371) - ---------------------------------------------------------- Waiver of distribution services fee--Institutional Service Shares (27,107) - ---------------------------------------------------------- Waiver of shareholder services fee--Institutional Shares (159,821) - ---------------------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (26,242) - ---------------------------------------------------------- --------- Total waivers (441,541) - ---------------------------------------------------------------------- ---------- Net expenses 622,126 - ------------------------------------------------------------------------------------ ---------- Net investment income $3,642,951 - ------------------------------------------------------------------------------------ ----------
(See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ----------------------------- 1995 1994 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - ---------------------------------------------------------------- OPERATIONS-- - ---------------------------------------------------------------- Net investment income $ 3,642,951 $ 2,157,116 - ---------------------------------------------------------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ---------------------------------------------------------------- Distributions from net investment income - ---------------------------------------------------------------- Institutional Shares (2,752,708) (1,478,776) - ---------------------------------------------------------------- Institutional Service Shares (890,243) (678,340) - ---------------------------------------------------------------- ------------- ------------- Change in net assets resulting from distributions to shareholders (3,642,951) (2,157,116) - ---------------------------------------------------------------- ------------- ------------- SHARE TRANSACTIONS-- - ---------------------------------------------------------------- Proceeds from sale of shares 425,149,193 344,046,340 - ---------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 545,318 426,614 - ---------------------------------------------------------------- Cost of shares redeemed (408,621,137) (332,135,904) - ---------------------------------------------------------------- ------------- ------------- Change in net assets resulting from share transactions 17,073,374 12,337,050 - ---------------------------------------------------------------- ------------- ------------- Change in net assets 17,073,374 12,337,050 - ---------------------------------------------------------------- NET ASSETS: - ---------------------------------------------------------------- Beginning of period 99,688,142 87,351,092 - ---------------------------------------------------------------- ------------- ------------- End of period $ 116,761,516 $ 99,688,142 - ---------------------------------------------------------------- ------------- -------------
(See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of New Jersey Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers two classes of shares: Institutional Shares and Institutional Service Shares. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 66.9% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or NEW JERSEY MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- supported (backed) by a letter of credit for any one institution or agency does not exceed 8.4% of total investments. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1995 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST ---------------------------------------- ---------------- ---------------- New Jersey State Transportation Trust Fund Agency, (Series 1993A) Weekly, VRDNs (FSA Ins)/(Merrill Lynch Capital Services, Inc. LIQ) 10/4/95 $4,300,000
OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1995, capital paid-in aggregated $116,761,516. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, ---------------------------- INSTITUTIONAL SHARES 1995 1994 - ----------------------------------------------------------------- ------------ ------------ Shares sold 334,240,209 240,111,228 - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 15,613 2,995 - ----------------------------------------------------------------- Shares redeemed (310,295,248) (243,476,200) - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional share transactions 23,960,574 (3,361,977) - ----------------------------------------------------------------- ------------ ------------
NEW JERSEY MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ---------------------------- INSTITUTIONAL SERVICE SHARES 1995 1994 - ----------------------------------------------------------------- ------------ ------------ Shares sold 90,908,984 103,935,112 - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 529,705 423,619 - ----------------------------------------------------------------- Shares redeemed (98,325,889) (88,659,704) - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional Service share transactions (6,887,200) 15,699,027 - ----------------------------------------------------------------- ------------ ------------ Net change resulting from share transactions 17,073,374 12,337,050 - ----------------------------------------------------------------- ------------ ------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will reimburse Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Institutional Service Shares. The Plan provides that the Fund may incur distribution expenses up to .10 of 1% of the average daily net assets of the Institutional Service Shares, annually, to reimburse FSC. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net assets of the Fund for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntarily waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. NEW JERSEY MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses of $61,531 and start-up administrative service expenses of $16,639 were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organizational and start-up administrative expenses at an annual rate of .005 of 1% and .01% of 1% of average daily net assets, respectively, until expenses initially borne are fully reimbursed or the expiration of five years after December 10, 1990 (the date the Fund became effective), whichever occurs earlier. For the period ended October 31, 1995, the Fund paid $5,318 and $0, respectively, pursuant to this agreement. INTERFUND TRANSACTIONS--During the period ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common officers. These transactions were made at current market value pursuant to rule 17a-7 under the Act amounting to $202,035,250 and $189,185,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (New Jersey Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of New Jersey Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights (see pages 2 and 15 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of New Jersey Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 ADDRESSES - -------------------------------------------------------------------------------- New Jersey Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 - ------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - ------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NEW JERSEY MUNICIPAL CASH TRUST INSTITUTIONAL SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 CUSIP 314229600 0100802A-IS (12/95) (LOGO) NEW JERSEY MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES INSTITUTIONAL SERVICE SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectuses of New Jersey Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal Trust (the "Trust") dated December 31, 1995. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-235-4669. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1995 Federated Securities Corp. Distributor A subsidiary of Federated Investors INVESTMENT POLICIES 2 Acceptable Investments 2 Participation Interests 2 Municipal Leases 2 Ratings 3 When-Issued and Delayed Delivery Transactions 4 Repurchase Agreements 4 Reverse Repurchase Agreements 5 Credit Enhancement 5 NEW JERSEY INVESTMENT RISKS 6 INVESTMENT LIMITATIONS 7 Regulatory Compliance 11 FEDERATED MUNICIPAL TRUST MANAGEMENT 11 Share Ownership 10 Trustees Compensation 21 Trustee Liability 23 INVESTMENT ADVISORY SERVICES 23 Investment Adviser 23 Advisory Fees 24 BROKERAGE TRANSACTIONS 24 OTHER SERVICES 26 Fund Administration 26 Custodian and Portfolio Recordkeeper 13 Transfer Agent 13 Independent Public Accountants 13 DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT 13 DETERMINING NET ASSET VALUE 14 REDEMPTION IN KIND 14 MASSACHUSETTS PARTNERSHIP LAW 14 THE FUND'S TAX STATUS 14 PERFORMANCE INFORMATION 15 Yield 15 Effective Yield 15 Tax-Equivalent Yield 15 Tax-Equivalency Table 16 Total Return 17 Performance Comparisons 17 ABOUT FEDERATED INVESTORS 17 Mutual Fund Market 18 Institutional Clients 18 Trust Organizations 18 Broker/Dealers and Bank Broker/Dealer Subsidiaries 18 APPENDIX 19 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security, the issuer of any demand feature applicable to the security, or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of non- appropriation"); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1, or 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 rating categories. See "Regulatory Compliance." WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated on the Fund`s records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument in return for a percentage of the instrument's market value in cash and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but does not ensure this result. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are: segregated on the Fund's records at the trade date; marked to market daily; and maintained until the transaction is settled. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the "credit enhancer"), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. NEW JERSEY INVESTMENT RISKS The Fund invests in obligations of New Jersey (the "State") issuers which result in the Fund's performance being subject to risks associated with the overall conditions present within the State. The following information is a general summary of the State's financial condition and a brief summary of the prevailing economic conditions. This information is based on official statements relating to securities that are believed to be reliable but should not be considered as a complete description of all relevant information. Standard & Poor's Ratings Group ("S & P") recently changed its economic outlook for New Jersey from negative to stable citing strong recovery from the recent recession. The New Jersey economy is diversified with large retail trade and service sectors and many headquarters of large U.S. corporations. Economic growth was especially strong in the third and fourth quarters of 1994 with 50,000 new jobs created-more than double the rate of the prior two years. However, the April 1995 unemployment rate was 6.3%, above the national level of 5.8%. At 6.3%, New Jersey's unemployment rate is the third highest in the nation behind California (7.3%) and New York (6.8%). In spite of the unemployment figures, New Jersey still boasts very high wealth and income indicators. A new fiscal policy has emerged in New Jersey. In an attempt to spur economic growth, the 1996 New Jersey budget includes significant personal income tax cuts. Given lower tax revenue levels, expenditure reductions will be key to balancing the budget. In 1996, total State spending is budgeted to grow by 3.0%. This low level growth can only be accomplished by significantly curtailing the State's fastest growing Budge items-Medicaid and corrections. In any fiscal scenario, the State's credit picture is greatly helped by strong cash reserves. In recent years, the State has maintained cash basis year-end balances exceeding 5.5% of revenues. The fiscal 1995 ending fund balance was $966 million. The overall credit quality of the State is further demonstrated by its debt ratings. New Jersey maintains an Aa1 rating from Moody's Investors Service, Inc. S & P rates the State AA+. The Fund's concentration in municipal securities issued by the State and its political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. The ability of the State or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the State; and the underlying fiscal condition of the State, its counties, and its municipalities. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as are necessary for clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one- third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may acquire publicly or nonpublicly issued New Jersey municipal securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies, limitations and its Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933, except for certain restricted securities which meet the criteria for liquidity as established by the Board of Trustees. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, or real estate limited partnerships, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry or in industrial development bonds or other securities the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above limitations cannot be changed without shareholder approval. The following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers (including companies responsible for paying principal and interest on industrial development bonds) which have records of less than three years of continuous operations, including the operation of any predecessor. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES The Fund will not purchase or retain the securities of any issuer if the officers and Trustees of the Trust or its investment adviser, owning individually more than .50 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. INVESTING IN MINERALS The Fund will not purchase or sell interests in oil, gas, or other mineral exploration or development programs or leases, although it may purchase the securities of issuers which invest in or sponsor such programs. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in its prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments, as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President of the Trust . Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds; formerly, Senior Partner, Ernst & Young LLP. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; President, Northgate Village Development Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Director, Trustee, or Managing General Partner of the Funds; formerly, President, Naples Property Management, Inc. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee, or Managing General Partner of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine and Member, Board of Trustees, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director, Trustee, or Managing General Partner of the Funds. Edward L. Flaherty, Jr.@ Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director, Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson * Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. and Federated Administrative Services. Peter E. Madden Seacliff 562 Bellevue Avenue Newport, RI Birthdate: March 16, 1942 Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, Trustee, or Managing General Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation. Gregor F. Meyer Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General Partner of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director, Trustee or Managing General Partner of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics and Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; founding Chairman, National Advisory Council for Environmental Policy and Technology and Federal Emergency Management Advisory Board. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/marketing consultant; Conference Coordinator, Non-profit entities; Director, Trustee, or Managing General Partner of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative Services, Federated Services Company, and Federated Shareholder Services; 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 of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. David M. Taylor Federated Investors Tower Pittsburgh, PA Birthdate: January 13, 1947 Treasurer Senior Vice President, Controller, and Trustee, Federated Investors; Controller, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., and Passport Research, Ltd.; Senior Vice President, Federated Shareholder Services; Vice President, Federated Administrative Services; Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President and Secretary Executive Vice President, Secretary, General Counsel, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds. * This Trustee is deemed to be an "interested person" as defined in the Investment Company Act of 1940. @ Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. As used in the table above, "The Funds" and "Funds" mean the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5 Years; 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; 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 U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut 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; The Virtus Funds; World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 4, 1995, the following shareholder(s) of record owned 5% or more of the outstanding Institutional Shares of the New Jersey Municipal Cash Trust: National Westminster Bank NJ, Jersey City, NJ, 40.78%; Corestates Bank NA, Philadelphia, PA, 17.18%; The Bopac Company, Clifton, NJ, 10.67%; Fiduciary Trust Co. International, New York, NY, 8.56%; and Tellson & Co., Gladstone, NJ, 11.29%. As of December 4, 1995, the following shareholder(s) of record owned 5% or more of the outstanding Institutional Service Shares of the New Jersey Municipal Cash Trust: Fiduciary Trust Co. International, New York, NY, 33.94%; Newbridge & Co., Lakehurst, NJ, 5.31%; Gardiner-Caldwell Synermed, Califon, NJ, 9.08%; Frank V. Grace, Long Valley, NJ, 7.14%; and Radnor Alloys Inc., Harrison, NJ, 11.11%. TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 68 other investment companies in the Fund Complex Thomas G. Bigley $2,458 $20,688 for the Trust and Trustee 49 other investment companies in the Fund Complex John T. Conroy, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex William J. Copeland $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Peter E. Madden $2,757 $90,563 for the Trust and Trustee 64 other investment companies in the Fund Complex Gregor F. Meyer $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex John E. Murray, Jr., $1,762 $0 for the Trust and Trustee 64 other investment companies in the Fund Complex Wesley W. Posvar $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Marjorie P. Smuts $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1995. #The aggregate compensation is provided for the Trust which is comprised of fifteen portfolios. +The information is provided for the last calendar year. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1995, 1994, and 1993, the adviser earned $431,160, $390,387, and $404,029, respectively, of which $228,371, $380,881, and $404,029, respectively, were waived. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this 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 fees. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal years ended October 31, 1995, 1994, 1993, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc., also a subsidiary of Federated Investors, served as the Fund's Administrator. (For purposes of this Statement of Additional Information, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the "Administrators".) For the fiscal year ended October 31, 1995, Federated Administrative Services earned $155,000. For the fiscal year ended ended October 31, 1994, the Administrators collectively earned $203,429. For the fiscal year ended ended October 31, 1993, Federated Administrative Services, Inc., earned $292,432. Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, holds approximately 20% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. CUSTODIAN AND PORTFOLIO RECORDKEEPER State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. TRANSFER AGENT As transfer agent, Federated Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on the size, type and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT With respect to Institutional Service Shares, the Fund has adopted a Distribution Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange Commission pursuant to the Investment Company Act of 1940. Additionally, the Fund has adopted a Shareholder Service Agreement with respect to both Institutional Service Shares and Institutional Shares. These arrangements permit the payment of fees to financial institutions, the distributor, and Federated Shareholder Services, to stimulate distribution activities and to cause services to be provided to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities 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 Trustees expect that the Fund will be able to achieve a more predictable flow of cash for investment purposes and to meet redemptions. This will facilitate more efficient portfolio management and assist the Fund in 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, 1995, payments in the amount of $27,107 were made pursuant to the Distribution Plan on behalf of Institutional Service Shares, all of which were waived. In addition, for this period, the Fund's Institutional Shares and Institutional Service Shares paid shareholder services fees in the amount of $201,709 and $67,766, respectively, of which $159,821 and $26,242 , respectively, were waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. For the seven-day period ended October 31, 1995, the yields for Institutional Shares and Institutional Service Shares were 3.41% and 3.31%, respectively. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended ended October 31, 1995, the effective yields for Institutional Shares and Institutional Service Shares were 3.46% and 3.36%, respectively. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal rate for individuals) and assuming that income is 100% exempt. For the seven-day period ended October 31, 1995, the tax-equivalent yields for Institutional Shares and Institutional Service Shares were 6.34% and 6.16%, respectively. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a "tax-free" investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1995 State of New Jersey TAX BRACKET: FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60% COMBINED FEDERAL AND STATE 17.38% 34.18% 37.65% 42.65% 46.25% SINGLE $1- $23,351- $56,551- $117,951- OVER RETURN 23,350 56,550 117,950 256,500 256,500 Tax-Exempt Yield Taxable Yield Equivalent 1.50% 1.82% 2.28% 2.41% 2.62% 2.79% 2.00% 2.42% 3.04% 3.21% 3.49% 3.72% 2.50% 3.03% 3.80% 4.01% 4.36% 4.65% 3.00% 3.63% 4.56% 4.81% 5.23% 5.58% 3.50% 4.24% 5.32% 5.61% 6.10% 6.51% 4.00% 4.84% 6.08% 6.42% 6.97% 7.44% 4.50% 5.45% 6.84% 7.22% 7.85% 8.37% 5.00% 6.05% 7.60% 8.02% 8.72% 9.30% 5.50% 6.66% 8.36% 8.82% 9.59% 10.23% 6.00% 7.26% 9.12% 9.62% 10.46% 11.16% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of Fund shares. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local income taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. For the one-year period ended October 31, 1995, and for the period from December 13, 1990 (date of initial public investment) through October 31, 1995, the average annual total returns were 3.46% and 3.02%, respectively, for Institutional Shares, and were 3.36% and 2.93%, respectively, for Institutional Service Shares. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: O LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. o MONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1994, Federated Investors managed more than $31 billion in assets across approximately 43 money market funds, including 17 government, 8 prime and 18 municipal with assets approximating $17 billion, $7.4 billion and $6.6 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $2 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity concerns and market access risks unique to notes. SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus sign (+) designation. SP-2 Satisfactory capacity to pay principal and interest. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a variable rate demand feature. The first rating (long-term rating) addresses the likelihood of repayment of principal and interest when due, and the second rating (short-term rating) describes the demand characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. LONG-TERM DEBT RATINGS AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rate "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATINGS Moody's Investor Service, Inc. (Moody's) short-term ratings are designated Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG ratings is to provide investors with a simple system by which the relative investment qualities of short-term obligations may be evaluated. MIG1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad based access to the market for refinancing. MIG2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the first representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the second representing an evaluation of the degree of risk associated with the demand feature. The VMIG rating can be assigned a 1 or 2 designation using the same definitions described above for the MIG rating. COMMERCIAL PAPER (CP) RATINGS P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short- term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well established industries, high rates of return on funds employed, conservative capitalization structure with moderate reliance on debt and ample asset protection, broad margins in earning coverage of fixed financial charges and high internal cash generation, well-established access to a range of financial markets and assured sources of alternate liquidity P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short- term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. LONG-TERM DEBT RATINGS AAA Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes is can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in AAA securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. NR Indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P or Moody's with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated A-1 or P-1. NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated "AAA" by S&P or "Aaa" by Moody's. NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated "AA" by S&P or "Aa" by Moody's. NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated "A" by S&P or Moody's. Cusip 314229600 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- OHIO MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH II SHARES PROSPECTUS The Cash II Shares of Ohio Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Ohio municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Ohio, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- CASH II SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Ohio Municipal Securities 6 Investment Risks 6 Non-Diversification 6 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Cash II Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 10 - ------------------------------------------------------ Special Purchase Features 10 HOW TO REDEEM SHARES 11 - ------------------------------------------------------ Special Redemption Features 12 ACCOUNT AND SHARE INFORMATION 12 - ------------------------------------------------------ TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 State and Local Taxes 14 OTHER CLASSES OF SHARES 14 - ------------------------------------------------------ PERFORMANCE INFORMATION 15 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- Institutional Shares 16 - ------------------------------------------------------ FINANCIAL STATEMENTS 17 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 35 - ------------------------------------------------------ ADDRESSES 36 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- CASH II SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)........................................ None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)........................................ None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)...................... None Redemption Fee (as a percentage of amount redeemed, if applicable)........... None Exchange Fee................................................................. None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)............................................. 0.36% 12b-1 Fee (after waiver)(2).................................................. 0.05% Total Other Expenses......................................................... 0.46% Shareholder Services Fee................................................... 0.25% Total Operating Expenses(3)........................................... 0.87%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The maximum 12b-1 fee is 0.30%. (3) The total operating expenses would have been 1.16% absent the voluntary waivers of a portion of the management fee and a portion of the 12b-1 fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Cash II Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - --------------------------------------------------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period........ $9 $28 $48 $107
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. OHIO MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--CASH II SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 35.
YEAR ENDED OCTOBER 31, ----------------------------------------------- 1995 1994 1993 1992 1991(A) ----- ----- ----- ----- ------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 - ------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------- Net investment income 0.03 0.02 0.02 0.03 0.02 - ------------------------------------------- LESS DISTRIBUTIONS - ------------------------------------------- Distributions from net investment income (0.03) (0.02) (0.02) (0.03) (0.02) - ------------------------------------------- ----- ----- ----- ----- ------ NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 - ------------------------------------------- ----- ----- ----- ----- ------ TOTAL RETURN (B) 3.30% 2.10% 2.02% 2.90% 2.27% - ------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ------------------------------------------- Expenses 0.87% 0.85% 0.78% 0.76% 0.63%* - ------------------------------------------- Net investment income 3.25% 2.09% 2.01% 2.86% 4.18%* - ------------------------------------------- Expense waiver/reimbursement (c) 0.29% 0.24% 0.19% 0.25% 0.34%* - ------------------------------------------- SUPPLEMENTAL DATA - ------------------------------------------- Net assets, end of period (000 omitted) $188,234 $156,051 $127,017 $133,877 $94,081 - -------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from April 22, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Trustees have established two classes of shares known as Cash II Shares and Institutional Shares. This prospectus relates only to Cash II Shares of the Fund, which are designed primarily for the retail customers of financial institutions as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term Ohio municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Ohio taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Ohio municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Ohio state income taxes. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Ohio and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Ohio state income tax imposed upon non- corporate taxpayers ("Ohio Municipal Securities"). Examples of Ohio Municipal Securities include, but are not limited to: - tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; - bond anticipation notes ("BANs") that are intended to be refinanced through a later issuance of longer-term bonds; - municipal commercial paper and other short-term notes; - variable rate demand notes; - municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and - participation, trust and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Ohio Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Ohio Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Ohio Municipal Securities is subject to the federal alternative minimum tax. OHIO MUNICIPAL SECURITIES Ohio Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Ohio Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Ohio Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Ohio Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Ohio Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Ohio Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Ohio Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Ohio Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Ohio Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge assets up to 15% to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF CASH II SHARES Federated Securities Corp. is the principal distributor for Cash II Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"), the distributor may be paid a fee in an amount computed at an annual rate of .30 of 1% of the average daily net asset value of Cash II Shares 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 services or distribution-related 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 entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up .25 of 1% of the average daily net asset value of Cash II Shares to obtain certain personal services for shareholders and for the maintenance of shareholder accounts. Federated Shareholders Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Distribution Plan and Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance will be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS - --------------------- ----------------------------------- .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of Cash II Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $25,000 within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o of State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Ohio Municipal Cash Trust, Cash II Shares; Fund Number (This number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to Ohio Municipal Cash Trust -- Cash II Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If shares certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. The check writing service allows shareholders to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio, only shares of that portfolio are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. As of December 4, 1995, Parcol & Co., Akron, OH, owned 34.39% of the voting securities of the Fund's Institutional Shares and Gradison & Company Inc., Cincinnati, OH, owned 80.64% of the voting securities of the Fund's Cash II Shares, and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Ohio. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. OHIO TAXES. Under existing Ohio laws, distributions made by the Fund will not be subject to Ohio income taxes to the extent that such distributions qualify as exempt interest dividends under the Internal Revenue Code, and represent (i) interest on obligations of Ohio, or its subdivisions which is exempt from federal income tax; or (ii) interest or dividends from obligations issued by the United States and its territories or possessions or by any authority, commission or instrumentality of the United States which are exempt from state income tax under federal laws. Conversely, to the extent that the distributions made by the Fund are derived from other types of obligations, such distributions will be subject to Ohio individual income taxes. Distributions made by the Fund will not be subject to Ohio corporate franchise tax to the extent that such distributions qualify as exempt interest dividends under the Internal Revenue Code, and represent (i) interest from obligations of Ohio, or its subdivisions which is exempt from federal income tax; or (ii) net interest income from obligations issued by the United States and its territories or possessions or by any authority, commission or instrumentality of the United States which is included in federal taxable income and which is exempt from state income tax under federal laws. Exempt-interest dividends that represent interest from obligations held by the Fund which are issued by Ohio or its political subdivisions will be exempt from any Ohio municipal income tax (even if the municipality is permitted under Ohio laws to levy a tax on intangible income). OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers another class of shares called Institutional Shares that are sold primarily to financial institutions acting in a fiduciary or agency capacity. Institutional Shares are sold at net asset value and are subject to a Shareholder Services Agreement. Investments in Institutional Shares are subject to a minimum initial investment of $25,000 within a 90-day period. Cash II Shares and Institutional Shares are subject to certain of the same expenses. Expense differences, however, between Cash II Shares and Institutional Shares may affect the performance of each class. To obtain more information and a prospectus for Institutional Shares, investors may call 1-800-235-4669. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield for shares. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the shares' tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. OHIO MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants, on page 35.
YEAR ENDED OCTOBER 31, ----------------------------------------------- 1995 1994 1993 1992 1991(A) ----- ----- ----- ----- ------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 - --------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------- Net investment income 0.04 0.02 0.02 0.03 0.02 - --------------------------------------------- LESS DISTRIBUTIONS - --------------------------------------------- Distributions from net investment income (0.04) (0.02) (0.02) (0.03) (0.02) - --------------------------------------------- ----- ----- ----- ----- ------ NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 - --------------------------------------------- ----- ----- ----- ----- ------ TOTAL RETURN (B) 3.61% 2.41% 2.33% 3.21% 2.40% - --------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------- Expenses 0.57% 0.55% 0.48% 0.46% 0.35%* - --------------------------------------------- Net investment income 3.56% 2.36% 2.30% 3.10% 4.46%* - --------------------------------------------- Expense waiver/reimbursement (c) 0.29% 0.07% 0.19% 0.25% 0.32%* - --------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------- Net assets, end of period (000 omitted) $72,93 $62,49 $81,74 $74,34 $44,771 - ---------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from April 22, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--99.1% - ----------------------------------------------------------------------- OHIO--99.1% ------------------------------------------------------- $ 2,000,000 Anthony Wayne School District, OH, 4.00% BANs, NR $ 2,000,691 12/14/1995 ------------------------------------------------------- 5,875,000 Belmont County, OH Weekly VRDNs (Lesco, Inc.)/ (PNC A-1 5,875,000 Bank, N.A. LOC) ------------------------------------------------------- 1,000,000 Belmont County, OH, County Jail Improvement Notes NR 1,002,306 (Third Series), 4.34% BANs, 8/30/1996 ------------------------------------------------------- 1,675,000 Berea, OH, BANS, 4.07%, 10/24/1996 NR(3) 1,677,671 ------------------------------------------------------- 3,000,000 Brecksville-Broadview Heights CSD, OH, GO Unlimited Tax NR(3) 3,000,667 School Improvement, 5.71% BANs, 1/18/1996 ------------------------------------------------------- 1,175,000 Butler County, OH, Limited GO's, 5.07% BANs, 3/15/1996 NR(3) 1,176,946 ------------------------------------------------------- 2,000,000 Cincinnati City School District, OH, 5.80% TANs, NR(3) 2,001,209 12/29/1995 ------------------------------------------------------- 5,760,000 (a) Cleveland, OH City School District, Energy Conservation A-1+ 5,760,000 Improvement Bonds (Series 1994) Weekly VRDNs (Internationale Nederlanden Bank N.V. LIQ)/ (Internationale Nederlanden Bank N.V. LOC) ------------------------------------------------------- 2,000,000 Cleveland-Cuyahoga County, OH Port Authority, (Series A-1+ 2,000,000 1993) Weekly VRDNs (Rock & Roll Hall of Fame Museum)/(Credit Local de France LOC) ------------------------------------------------------- 1,800,000 Clinton County, OH Hospital Authority Weekly VRDNs P-1 1,800,000 (Clinton Memorial Hospital)/(National City Bank, Columbus, OH LOC) ------------------------------------------------------- 2,000,000 Columbiana County, OH, Adjustable Rate Industrial P-1 2,000,000 Development Revenue Bonds Weekly VRDNs (C & S Land Company Project)/(Bank One, Youngstown, NA LOC) ------------------------------------------------------- 1,800,000 Conneaut, OH, 4.45% BANs, 7/26/1996 NR 1,803,793 -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 1,200,000 Cuyahoga County, OH Hospital Authority Daily VRDNs VMIG1 $ 1,200,000 (University Hospital of Cleveland)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) ------------------------------------------------------- 800,000 Cuyahoga County, OH IDA Weekly VRDNs (Animal Protection VMIG1 800,000 League (Cuyahoga County))/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 1,800,000 Cuyahoga County, OH IDA Weekly VRDNs (East Park P-1 1,800,000 Community, Inc.)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 655,000 Cuyahoga County, OH IDA Weekly VRDNs (Interstate Diesel P-1 655,000 Service, Inc.)/(Huntington National Bank, Columbus, OH LOC) ------------------------------------------------------- 715,000 Cuyahoga County, OH IDA Weekly VRDNs (Parma-Commerce P-1 715,000 Parkway West)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 1,200,000 Cuyahoga County, OH IDA Weekly VRDNs (Premier P-1 1,200,000 Manufacturing Corp.)/(National City Bank, Kentucky LOC) ------------------------------------------------------- 2,000,000 Cuyahoga County, OH IDA, IDRB (Series 1995) Weekly P-1 2,000,000 VRDNs (Avalon Precision Casting Co. Project)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 3,000,000 Dayton, OH, Revenue Refunding Bonds (Series 1993E) VMIG1 3,000,000 Weekly VRDNs (Emery Air Freight Corp.)/(Mellon Bank NA, Pittsburgh LOC) ------------------------------------------------------- 1,700,000 Delaware County, OH, IDRB (Series 1995) Weekly VRDNs P-1 1,700,000 (Air Waves, Inc. Project)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 1,240,000 Elyria, OH, General Limited Tax Various Purpose BANS, NR(3) 1,242,922 4.26%, 10/11/1996 ------------------------------------------------------- 2,000,000 Euclid City School District, OH, 4.83% RANs, 12/15/1995 NR(3) 2,000,416 ------------------------------------------------------- 1,000,000 Franklin County, OH Hospital Facility Authority Weekly VMIG1 1,000,000 VRDNs (Riverside United Methodist Hospital)/(National City Bank, Cleveland, OH LOC) -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 4,500,000 Franklin County, OH IDA Weekly VRDNs P-1 $ 4,500,000 (Heekin Can, Inc.)/(PNC Bank, Ohio, N.A. LOC) ------------------------------------------------------- 3,160,000 Franklin County, OH IDA Weekly VRDNs (Unicorn Leasing P-1 3,160,000 Corp.)/(Fifth Third Bank, Cincinnati LOC) ------------------------------------------------------- 3,670,000 Franklin County, OH IDA, (Series 1995) Weekly VRDNs P-1 3,670,000 (Fabcon L.L.C. Project)/(Norwest Bank Minnesota, Minneapolis LOC) ------------------------------------------------------- 2,000,000 Franklin County, OH IDA, IDRB Weekly VRDNs (Tigerpoly P-1 2,000,000 Manufacturing, Inc.)/(Mitsubishi Bank Ltd, Tokyo LOC) ------------------------------------------------------- 2,000,000 Franklin County, OH, Ltd. GO's (Series 8/95), 4.10% SP-1+ 2,003,106 BANs, 8/23/1996 ------------------------------------------------------- 1,200,000 Gates Mills Village, OH, Water System Improvement BANS, NR 1,201,105 4.10%, 10/17/1996 ------------------------------------------------------- 1,950,000 Hamilton County, OH Health System Weekly VRDNs (West VMIG1 1,950,000 Park Community)/(Fifth Third Bank, Cincinnati LOC) ------------------------------------------------------- 1,500,000 Hamilton County, OH Hospital Facilities Authority, A-1 1,500,000 Revenue Bonds (Series 1986A) Weekly VRDNs (Good Samaritan Hospital) ------------------------------------------------------- 3,000,000 Hamilton, OH, Ltd. Tax GO's, 3.91% BANs, 1/18/1996 NR(3) 3,000,050 ------------------------------------------------------- 2,200,000 Hamilton, OH, Real Estate Acquisition/Electric NR(3) 2,200,259 Improvement System BANs (Series A), 4.02%, 6/14/1996 ------------------------------------------------------- 2,000,000 Holmes County, OH IDA Weekly VRDNs (Poultry A-1+ 2,000,000 Processing)/(Rabobank Nederland, Utrecht LOC) ------------------------------------------------------- 1,250,000 Huber Heights, OH, IDRB (Series 1994) Weekly VRDNs P-1 1,250,000 (Lasermike, Inc. Project)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 1,000,000 Huron City, OH, General Limited Tax Various Purpose, NR 1,001,336 4.49% BANs, 5/31/1996 ------------------------------------------------------- 300,000 Kettering, OH IDA Weekly VRDNs (Center-Plex Venture)/ P-1 300,000 (Society National Bank, Cleveland, OH LOC) -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 1,680,000 Lake County, OH, General and SA Limited Tax Various NR(2) $ 1,681,816 BANS, 4.07%, 10/10/1996 ------------------------------------------------------- 2,885,000 Lorain County, OH, Health Facilities Revenue Bonds P-1 2,885,000 (Series 1992A) Weekly VRDNs (Elyria United Methodist Home)/(Fifth Third Bank, Cincinnati LOC) ------------------------------------------------------- 4,565,000 Lorain Port Authority, OH, (Series 1994) Weekly VRDNs P-1 4,565,000 (Spitzer Great Lakes Ltd., Inc.)/(Bank One, Cleveland, N.A. LOC) ------------------------------------------------------- 1,600,000 Lucas County, OH IDA Weekly VRDNs (Kuhlman Corp.)/ P-1 1,600,000 (Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 1,905,000 Lucas County, OH, Hospital Facility Improvement Revenue P-1 1,905,000 Bonds (Series 93) Weekly VRDNs (Lott Industries, Inc.)/ (National City Bank, Cleveland, OH LOC) ------------------------------------------------------- 300,000 Lucas County, OH, Hospital Improvement Revenue Weekly P-1 300,000 VRDNs (Sunshine Children's Home)/(National City Bank, Cleveland, OH LOC) ------------------------------------------------------- 8,500,000 Lucas County, OH, Hospital Refunding Revenue Bonds P-1 8,500,000 Weekly VRDNs (Riverside Hospital, OH)/(Huntington National Bank, Columbus, OH LOC) ------------------------------------------------------- 3,500,000 Lucas County, OH, Various Purpose Improvement Notes NR(4) 3,501,985 (Series 1994), 5.75% BANs, 11/30/1995 ------------------------------------------------------- 5,325,000 Mahoning County, OH Multifamily HFA Weekly VRDNs A-1 5,325,000 (International Towers, Inc.)/(PNC Bank, N.A. LOC) ------------------------------------------------------- 6,900,000 Mahoning County, OH, Housing Revenue Bonds (Series A-1 6,900,000 1995) Weekly VRDNs (Copeland Oaks Project)/ (Bank One, Akron, N.A. LOC) ------------------------------------------------------- 40,000 Mahoning County, OH, IDR Weekly VRDNs (Tru-Cut Die P-1 40,000 Corp.)/(PNC Bank, Ohio, N.A. LOC) ------------------------------------------------------- 1,120,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal P-1 1,120,000 Products, Inc.)/(Bank One, Columbus, N.A. LOC) -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 2,000,000 Marysville Exempted Village School District, OH, NR $ 2,001,101 General Unlimited Tax School Improvement Bond Anticipation Notes, 4.27% BANs, 12/20/1995 ------------------------------------------------------- 460,000 Medina County, OH, IDR, 4.05% TOBs (Bopco)/(Bank One, P-1 460,000 Akron, N.A. LOC), Optional Tender 3/1/1996 ------------------------------------------------------- 5,400,000 Medina County, OH, Solid Waste Disposal Revenue Bonds P-1 5,400,000 (Series 1995) Weekly VRDNs (Valley City Steel Company Project)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 7,000,000 Montgomery County, OH, Ltd. Tax GO's Certificate of NR(2) 7,022,709 Indebtedness (1995 Series A), 5.00% BANs, 4/26/1996 ------------------------------------------------------- 2,010,000 Montgomery, OH IDA Weekly VRDNs (Bethesda Two Limited A-1 2,010,000 Partnership)/(Huntington National Bank, Columbus, OH LOC) ------------------------------------------------------- 3,600,000 Morrow County, OH, Detention Facilities Bond NR 3,601,564 Anticipation Notes (Series 1995), 4.25% BANs, 4/15/1996 ------------------------------------------------------- 500,000 Muskingham County, OH Hospital Facilities Authority VMIG1 500,000 Weekly VRDNs (Bethesda Care System)/(National City Bank, Columbus, OH LOC) ------------------------------------------------------- 370,000 North Olmsted, OH IDA Weekly VRDNs (Bryant & P-1 370,000 Stratton)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 730,000 North Olmsted, OH IDA, 4.00% TOBs (Therm-All)/ P-1 730,000 (National City Bank, Cleveland, OH LOC), Optional Tender 2/1/1996 ------------------------------------------------------- 4,000,000 North Olmsted, OH, Various Purpose Improvement Notes, NR(3) 4,010,198 (Series 1995), 4.67% BANs, 6/20/1996 ------------------------------------------------------- 2,135,000 Ohio HFA Weekly VRDNs (Westchester Village)/(Society P-1 2,135,000 National Bank, Cleveland, OH LOC) ------------------------------------------------------- 7,405,000 Ohio HFA, 4.40% TOBs (Comerica, Inc.)/(Comerica, Inc. P-1 7,405,000 LOC), Optional Tender 11/1/1995 -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 6,435,000 (a) Ohio HFA, Single Family Mortgage (Series PT-8) Weekly A-1+ $ 6,435,000 VRDNs (GNMA COL)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LIQ) ------------------------------------------------------- 2,000,000 Ohio State Air Quality Development Authority, (Series P-1 2,000,000 1998A) Weekly VRDNs (PPG Industries, Inc.) ------------------------------------------------------- 1,800,000 Ohio State Air Quality Development Authority, 3.75% CP AAA 1,800,000 (Cincinnati Gas and Electric Co.)/(Union Bank of Switzerland, Zurich LOC), Mandatory Tender 11/7/1995 ------------------------------------------------------- 3,000,000 Ohio State Air Quality Development Authority, 3.75% CP AAA 3,000,000 (Cincinnati Gas and Electric Co.)/(Union Bank of Switzerland, Zurich LOC), Mandatory Tender 11/9/1995 ------------------------------------------------------- 4,500,000 Ohio State Air Quality Development Authority, 3.80% CP A-1+ 4,500,000 (Cincinnati Gas and Electric Co.)/(J.P. Morgan Delaware, Wilmington LOC), Mandatory Tender 12/8/1995 ------------------------------------------------------- 1,000,000 Ohio State Water Development Authority Weekly VRDNs P-1 1,000,000 (PPG Industries, Inc.) ------------------------------------------------------- 2,500,000 Ohio State Water Development Authority, Multimodal A-1+ 2,500,000 Water Development (Series 1993) Weekly VRDNs (Timken Co.)/(Wachovia Bank of Georgia NA, Atlanta LOC) ------------------------------------------------------- 5,000,000 Ohio State Water Development Authority, Ohio PCR Bonds A-1+ 5,000,000 (Series 1989) Weekly VRDNs (Duquesne Light Power Co.)/(Barclays Bank PLC, London LOC) ------------------------------------------------------- 3,500,000 Ohio State Water Development Authority, Pollution AAA 3,515,335 Control Facilities Revenue Bonds, 4.75% TOBs (Union Bank of Switzerland, Zurich LOC), Optional Tender 5/1/1996 ------------------------------------------------------- 700,000 Ohio State Weekly VRDNs (John Carroll University, OH)/ P-1 700,000 (PNC Bank, N.A. LOC) ------------------------------------------------------- 1,420,000 Ohio State, IDR (Series 1991) Weekly VRDNs (Standby A-1+ 1,420,000 Screw, Inc.)/(National City Bank, Columbus, OH LOC) ------------------------------------------------------- 1,400,000 Ohio State, IDRB (Series 1994) Weekly VRDNs (Anomatic P-1 1,400,000 Corporation)/(National City Bank, Columbus, OH LOC) -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 1,350,000 Orrville, OH IDA Weekly VRDNs (O.S. Associates/ A-1 $ 1,350,000 Contours, Inc.)/(National City Bank, Cleveland, OH LOC) ------------------------------------------------------- 1,000,000 Pickaway County, OH IDA Weekly VRDNs P-1 1,000,000 (PPG Industries, Inc.) ------------------------------------------------------- 210,000 Portage County, OH IDA Weekly VRDNs P-1 210,000 (D & W Associates)/(Bank One, Akron, N.A. LOC) ------------------------------------------------------- 400,000 Portage County, OH IDA, 4.05% TOBs (Neidlinger)/ P-1 400,000 (Society National Bank, Cleveland, OH LOC), Optional Tender 3/1/1996 ------------------------------------------------------- 900,000 Portage County, OH IDA, Adjustable Rate Industrial P-1 900,000 Revenue Bonds Weekly VRDNs (Lovejoy Industries)/(Star Bank, NA, Cincinnati LOC) ------------------------------------------------------- 5,000,000 Richland County, OH, Special Assessment Limited Tax NR 5,002,622 Sewer Improvement BANS (Series 1995), 4.25%, 12/14/1995 ------------------------------------------------------- 1,000,000 Rickenbacker, OH Port Authority, (Series 1992) Weekly P-1 1,000,000 VRDNs (Rickenbacker Holdings, Inc.)/(Bank One, Columbus, N.A. LOC) ------------------------------------------------------- 1,250,000 Ross County, OH, Hospital Facilities Revenue Bonds AA- 1,250,000 (Series 1995) Weekly VRDNs (Medical Center Hospital Project)/(Fifth Third Bank, Cincinnati LOC) ------------------------------------------------------- 1,200,000 Sharonville, OH, IDR Weekly VRDNs (Xtek, Inc.)/(Fifth VMIG1 1,200,000 Third Bank, Cincinnati LOC) ------------------------------------------------------- 1,150,000 Shelby City, OH, General Ltd. Tax Water System NR 1,152,218 Improvement BANS (Series 1995), 4.50%, 8/22/1996 ------------------------------------------------------- 880,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating)/ P-1 880,000 (Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 2,000,000 Solon, OH, IDRB (Series 1995) Weekly VRDNs (Cleveland A+ 2,000,000 Twist Drill Company)/(Nationsbank of Georgia, N.A. LOC) ------------------------------------------------------- 2,000,000 Springdale, OH, BANS (Series 1995), 4.15%, 9/20/1996 NR 2,003,375 ------------------------------------------------------- 1,400,000 Stark County, OH IDR Weekly VRDNs (Society National P-1 1,400,000 Bank, Cleveland, OH LOC) -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 2,345,000 Stark County, OH IDR, (Series 1994) Weekly VRDNs (Wilk P-1 $ 2,345,000 of Morris)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 2,685,000 Stark County, OH IDR, Sewer District Improvements Notes NR(3) 2,689,317 (Series 1995-1), 5.00% BANs, 4/3/1996 ------------------------------------------------------- 2,000,000 Stark County, OH IDR, Various Purpose Notes (Series NR(3) 2,003,216 1995-1), 5.00% BANs, 4/3/1996 ------------------------------------------------------- 1,350,000 Strongsville, OH, Adjustable Rate Demand IDRB (Series A-1 1,350,000 1994) Weekly VRDNs (Nutro Machinery Corp., Project)/(Huntington National Bank, Columbus, OH LOC) ------------------------------------------------------- 2,900,000 Summit County, OH IDR Weekly VRDNs (Maison Aine Limited P-1 2,900,000 Partnership)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 4,500,000 Summit County, OH IDR, (Series 1994) Weekly VRDNs P-1 4,500,000 (Harry London Candies, Inc.)/(Bank One, Akron, N.A. LOC) ------------------------------------------------------- 1,245,000 Summit County, OH IDR, 4.00% TOBs (Matech Machine Tool P-1 1,245,000 Co.)/(Bank One, Akron, N.A. LOC), Optional Tender 5/1/1996 ------------------------------------------------------- 385,000 Summit County, OH IDR, 4.05% TOBs (Keltec Industries)/ P-1 385,000 (Bank One, Akron, N.A. LOC), Optional Tender 3/1/1996 ------------------------------------------------------- 795,000 Summit County, OH IDR, 4.05% TOBs (Universal Rack)/ P-1 795,000 (National City Bank, Cleveland, OH LOC), Optional Tender 3/1/1996 ------------------------------------------------------- 1,115,000 Summit County, OH IDR, 4.40% TOBs (Rogers Industrial P-1 1,115,000 Products, Inc.)/(Bank One, Akron, N.A. LOC), Optional Tender 11/1/1995 ------------------------------------------------------- 795,000 Summit County, OH IDR, 4.70% TOBs (Bechmer-Boyce P-1 795,000 Project)/(Society National Bank, Cleveland, OH LOC), Optional Tender 1/15/1996 ------------------------------------------------------- 910,000 Summit County, OH IDR, 4.85% TOBs (S.D. Meyers, Inc.)/ P-1 910,000 (Bank One, Akron, N.A. LOC), Optional Tender 2/15/1996 -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 1,000,000 Summit County, OH IDR, Adjustable Rate Bonds (Series P-1 $ 1,000,000 1994) Weekly VRDNs (Austin Printing Co., Inc.)/ (Bank One, Akron, N.A. LOC) ------------------------------------------------------- 1,000,000 Summit County, OH IDR, Adjustable Rate IDRB (Series P-1 1,000,000 1995) Weekly VRDNs (Cardtech Project (OH))/ (Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 2,890,000 Summit County, OH IDR, Variable Rate Demand IDRB P-1 2,890,000 (Series 1994B) Weekly VRDNs (Harry London Candies, Inc.)/(Bank One, Akron, N.A. LOC) ------------------------------------------------------- 2,000,000 Summit County, OH, GO Various Purpose Notes (Series NR(3) 2,002,317 1995A), 5.00% BANs, 3/7/1996 ------------------------------------------------------- 1,000,000 Toledo-Lucas County, OH Port Authority, IDA Weekly AAA 1,000,000 VRDNs (Medusa Corp.)/(Bayerische Vereinsbank AG, Munich LOC) ------------------------------------------------------- 2,700,000 Trumbull County, OH IDA, (Series 1989) Weekly VRDNs A-1 2,700,000 (McDonald Steel Corp.)/(PNC Bank, N.A. LOC) ------------------------------------------------------- 1,355,000 Trumbull County, OH IDA, Adjustable Rate IDR Refunding P-1 1,355,000 Bonds (Series 1994) Weekly VRDNs (Churchill Downs, Inc.)/(Bank One, Columbus, N.A. LOC) ------------------------------------------------------- 3,000,000 Trumbull County, OH, Correctional Facilities BANs NR(4) 3,001,643 (Series 1995), 4.83%, 4/11/1996 ------------------------------------------------------- 3,000,000 University of Cincinnati, OH, General Receipts SP-1 3,005,929 Anticipation Notes-Series T, 4.25% BANs, 8/28/1996 ------------------------------------------------------- 4,100,000 Westlake, OH, IDR Weekly VRDNs (Kahal Limited P-1 4,100,000 Partnership)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 1,145,000 Willoughby City, OH, Variable Rate Demand IDR Refunding P-1 1,145,000 Bonds (Series 1995A) Weekly VRDNs (Pine Ridge Shopping Center Company Project)/(Star Bank, NA, Cincinnati LOC) -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 1,245,000 Willoughby City, OH, Variable Rate Demand IDR Revenue P-1 $ 1,245,000 Bonds (Series 1995 B) Weekly VRDNs (Pine Ridge Shop- ping Center Company Project)/(Star Bank, NA, Cincin- nati LOC) ------------------------------------------------------- 1,600,000 Wood County, OH Weekly VRDNs (Principle Business P-1 1,600,000 Enterprises)/(National City Bank, Cleveland, OH LOC) ------------------------------------------------------- 2,200,000 Wood County, OH, EDRB Weekly VRDNs (Roe Inc. P-1 2,200,000 Project)/(Huntington National Bank, Columbus, OH LOC) ------------------------------------------------------- 5,300,000 (a) Youngstown City School District, OH, Municipal Install- A-1+ 5,300,000 ment Trust Receipts (Series 1994-A) Weekly VRDNs (Internationale Nederlanden Bank N.V. LIQ)/(Internationale Nederlanden Bank N.V. LOC) ------------ ------------------------------------------------------- $258,712,822 TOTAL INVESTMENTS (AT AMORTIZED COST)(B) ------------ -------------------------------------------------------
Securities that are subject to Alternative Minimum Tax represent 45.2% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. These securities have been determined to be liquid under criteria established by the Board of Trustees. At the end of the period, these securities amounted to $17,495,000 which represent 6.7% of net assets. (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($261,165,455) at October 31, 1995. OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronyms are used throughout this portfolio: BANs --Bond Anticipation Notes COL --Collateralized CP --Commercial Paper CSD --Central School District EDRB --Economic Development Revenue Bonds GNMA --Government National Mortgage Association GO --General Obligation HFA --Housing Finance Authority IDA --Industrial Development Authority IDR --Industrial Development Revenue IDRB --Industrial Development Revenue Bonds LIQ --Liquidity Agreement LOC --Letter of Credit PCR --Pollution Control Revenue PLC --Public Limited Company RANs --Revenue Anticipation Notes SA --Support Agreement TANs --Tax Anticipation Notes TOBs --Tender Option Bonds VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $258,712,822 - ------------------------------------------------------------------------------- Cash 334,964 - ------------------------------------------------------------------------------- Income receivable 2,498,541 - ------------------------------------------------------------------------------- Receivable for shares sold 739 - ------------------------------------------------------------------------------- Deferred expenses 7,251 - ------------------------------------------------------------------------------- ------------ Total assets 261,554,317 - ------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------- Payable for shares redeemed $ 48,000 - -------------------------------------------------------------------- Income distribution payable 223,569 - -------------------------------------------------------------------- Accrued expenses 117,293 - -------------------------------------------------------------------- -------- Total liabilities 388,862 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 261,165,455 shares outstanding $261,165,455 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------- INSTITUTIONAL SHARES: - ------------------------------------------------------------------------------- $72,931,089 / 72,931,089 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------ CASH II SHARES: - ------------------------------------------------------------------------------- $188,234,366 / 188,234,366 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ------------------------------------------------------------------------------------ Interest $9,872,940 - ------------------------------------------------------------------------------------ EXPENSES: - ------------------------------------------------------------------------------------ Investment advisory fee $ 957,142 - ---------------------------------------------------------------------- Administrative personnel and services fee 181,139 - ---------------------------------------------------------------------- Custodian fees 67,328 - ---------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 95,590 - ---------------------------------------------------------------------- Directors'/Trustees' fees 1,888 - ---------------------------------------------------------------------- Auditing fees 14,191 - ---------------------------------------------------------------------- Legal fees 2,818 - ---------------------------------------------------------------------- Portfolio accounting fees 54,785 - ---------------------------------------------------------------------- Distribution services fee--Cash II Shares 493,611 - ---------------------------------------------------------------------- Shareholder services fee--Institutional Shares 186,871 - ---------------------------------------------------------------------- Shareholder services fee--Cash II Shares 411,342 - ---------------------------------------------------------------------- Share registration costs 49,625 - ---------------------------------------------------------------------- Printing and postage 18,607 - ---------------------------------------------------------------------- Insurance premiums 5,770 - ---------------------------------------------------------------------- Miscellaneous 15,305 - ---------------------------------------------------------------------- ---------- Total expenses 2,556,012 - ---------------------------------------------------------------------- Waivers-- - ---------------------------------------------------------- Waiver of investment advisory fee $ (95,512) - ---------------------------------------------------------- Waiver of distribution services fee--Cash II Shares (411,342) - ---------------------------------------------------------- Waiver of shareholder services fee--Institutional Shares (186,871) - ---------------------------------------------------------- --------- Total waivers (693,725) - ---------------------------------------------------------------------- ---------- Net expenses 1,862,287 - ------------------------------------------------------------------------------------ ---------- Net investment income $8,010,653 - ------------------------------------------------------------------------------------ ----------
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ------------------------------- 1995 1994 --------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - -------------------------------------------------------------- OPERATIONS-- - -------------------------------------------------------------- Net investment income $ 8,010,653 $ 4,456,860 - -------------------------------------------------------------- --------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS-- - -------------------------------------------------------------- Distributions from net investment income - -------------------------------------------------------------- Institutional Shares (2,660,655) (1,561,810) - -------------------------------------------------------------- Cash II Shares (5,349,998) (2,895,050) - -------------------------------------------------------------- --------------- ------------- Change in net assets resulting from distributions to shareholders (8,010,653) (4,456,860) - -------------------------------------------------------------- --------------- ------------- SHARE TRANSACTIONS-- - -------------------------------------------------------------- Proceeds from sale of Shares 1,275,288,208 809,574,268 - -------------------------------------------------------------- Net asset value of Shares issued to shareholders in payment of distributions declared 5,470,332 2,932,696 - -------------------------------------------------------------- Cost of Shares redeemed (1,238,142,557) (802,723,017) - -------------------------------------------------------------- --------------- ------------- Change in net assets resulting from share transactions 42,615,983 9,783,947 - -------------------------------------------------------------- --------------- ------------- Change in net assets 42,615,983 9,783,947 - -------------------------------------------------------------- NET ASSETS: - -------------------------------------------------------------- Beginning of period 218,549,472 208,765,525 - -------------------------------------------------------------- --------------- ------------- End of period $ 261,165,455 $ 218,549,472 - -------------------------------------------------------------- --------------- -------------
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Ohio Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers two classes of shares: Institutional Shares and Cash II Shares. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 71.6% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or supported (backed) by a letter of credit for any one institution or agency does not exceed 12.3% of total investments. OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1995 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST - ------------------------------------------------------- ---------------- ---------------- Cleveland OH City School District, Energy Conservation Improvement Bonds (Series 1994) Weekly VRDNs 10/02/95 $5,760,000 Ohio HFA, Single Family Mortgage (Series PT-8) Weekly VRDNs 06/16/94 6,435,000 Youngstown City School District, OH, Municipal Installment Trust Receipts (Series 1994-A) Weekly VRDNs 08/02/95 5,300,000
OTHER--Investment transactions are accounted for on the trade date. OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1995, capital paid-in aggregated $261,165,455. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, ---------------------------- INSTITUTIONAL SHARES 1995 1994 - ----------------------------------------------------------------- ------------ ------------ Shares sold 571,719,826 275,545,260 - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 277,721 99,198 - ----------------------------------------------------------------- Shares redeemed (561,565,338) (294,893,757) - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional Share transactions 10,432,209 (19,249,299) - ----------------------------------------------------------------- ------------ ------------
YEAR ENDED OCTOBER 31, ---------------------------- CASH II SHARES 1995 1994 - ----------------------------------------------------------------- ------------ ------------ Shares sold 703,568,382 534,029,008 - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 5,192,611 2,833,498 - ----------------------------------------------------------------- Shares redeemed (676,577,219) (507,829,260) - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Cash II Share transactions 32,183,774 29,033,246 - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Fund share transactions 42,615,983 9,783,947 - ----------------------------------------------------------------- ------------ ------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee of the Fund. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Services Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Cash II Shares. The Plan provides that the Fund may incur distribution expenses up to .30 of 1% of the average daily net assets of the Cash II shares, annually, to compensate OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- FSC. FSC may voluntarily choose to waive a portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of daily average net assets of the Fund for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. For the fiscal year ended October 31, 1995, Institutional Shares fully waived its shareholder services fee. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ also maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS--During the period ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common Officers. These transactions were made at current market value pursuant to Rule 17a-7 under the Act amounting to $500,170,000 and $491,515,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Ohio Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Ohio Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights (see pages 2 and 16 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Ohio Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 ADDRESSES - -------------------------------------------------------------------------------- Ohio Municipal Cash Trust Cash II Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - --------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - --------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - --------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 - --------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - --------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - ---------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- OHIO MUNICIPAL CASH TRUST CASH II SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 CUSIP 314229840 1030105A-CII(12/95) OHIO MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS The Institutional Shares of Ohio Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Ohio municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Ohio, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Ohio Municipal Securities 6 Investment Risks 6 Non-Diversification 6 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Institutional Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ HOW TO REDEEM SHARES 10 - ------------------------------------------------------ ACCOUNT AND SHARE INFORMATION 11 - ------------------------------------------------------ TAX INFORMATION 12 - ------------------------------------------------------ Federal Income Tax 12 State and Local Taxes 13 OTHER CLASSES OF SHARES 13 - ------------------------------------------------------ PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- CASH II SHARES 15 - ------------------------------------------------------ FINANCIAL STATEMENTS 16 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 34 - ------------------------------------------------------ ADDRESSES 35 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................................. None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)................................................. None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................... None Redemption Fee (as a percentage of amount redeemed, if applicable).................... None Exchange Fee.......................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)...................................................... 0.36% 12b-1 Fee............................................................................. None Total Other Expenses.................................................................. 0.21% Shareholder Services Fee (after waiver)(2)................................. 0.00% Total Operating Expenses(3).................................................... 0.57%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The maximum shareholder services fee is 0.25%. (3) The total operating expenses would have been 0.86% absent the voluntary waivers of a portion of the management fee and the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - --------------------------------------------------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period........ $6 $18 $32 $ 71
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. OHIO MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants, on page 34.
YEAR ENDED OCTOBER 31, ----------------------------------------------- 1995 1994 1993 1992 1991(A) ----- ----- ----- ----- ------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 - --------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------- Net investment income 0.04 0.02 0.02 0.03 0.02 - --------------------------------------------- LESS DISTRIBUTIONS - --------------------------------------------- Distributions from net investment income (0.04) (0.02) (0.02) (0.03) (0.02) - --------------------------------------------- ----- ----- ----- ----- ------ NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 - --------------------------------------------- ----- ----- ----- ----- ------ TOTAL RETURN (B) 3.61% 2.41% 2.33% 3.21% 2.40% - --------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------- Expenses 0.57% 0.55% 0.48% 0.46% 0.35%* - --------------------------------------------- Net investment income 3.56% 2.36% 2.30% 3.10% 4.46%* - --------------------------------------------- Expense waiver/reimbursement (c) 0.29% 0.07% 0.19% 0.25% 0.32%* - --------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------- Net assets, end of period (000 omitted) $72,931 $62,499 $81,748 $74,342 $44,771 - ---------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from April 22, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Trustees have established two classes of shares known as Institutional Shares and Cash II Shares. This prospectus relates only to Institutional Shares of the Fund, which are designed primarily for financial institutions acting in a fiduciary or agency capacity as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term Ohio municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Ohio taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Ohio municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Ohio state income taxes. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Ohio and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Ohio state income tax imposed upon non-corporate taxpayers ("Ohio Municipal Securities"). Examples of Ohio Municipal Securities include, but are not limited to: - tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; - bond anticipation notes ("BANs") that are intended to be refinanced through a later issuance of longer-term bonds; - municipal commercial paper and other short-term notes; - variable rate demand notes; - municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and - participation, trust and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Ohio Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Ohio Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Ohio Municipal Securities is subject to the federal alternative minimum tax. OHIO MUNICIPAL SECURITIES Ohio Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Ohio Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Ohio Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Ohio Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Ohio Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Ohio Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Ohio Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Ohio Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Ohio Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of its total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of Institutional Shares, computed at an annual rate, to obtain certain personal services for shareholders and provide maintenance of shareholder accounts ("shareholder services"). From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor may pay financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide certain services to shareholders. These services may include, but are not limited to, distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of shares. Any fees paid for these services by the distributor will be reimbursed by the adviser and not the Fund. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS - --------------------- ----------------------------------- .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of Institutional Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased either by wire or by check. The Fund reserves the right to reject any purchase request. To make a purchase, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken by telephone. The minimum initial investment is $25,000. However, an account may be opened with a smaller amount as long as the minimum is reached within 90 days. Minimum investments will be calculated by combining all accounts maintained with the Fund. Financial institutions may impose different minimum investment requirements on their customers. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as follows: Federated Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Ohio Municipal Cash Trust--Institutional Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by mailing a check made payable to Ohio Municipal Cash Trust--Institutional Shares to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are considered received when payment by check is converted into federal funds. This is normally the next business day after the check is received. SUBACCOUNTING SERVICES. Financial institutions are encouraged to open single master accounts. A subaccounting system is available through the transfer agent to minimize internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Fund shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. State securities laws may require certain financial institutions such as depository institutions to register as dealers. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after Federated Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 p.m. (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If shares certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 4, 1995, Parcol & Co., Akron, OH, owned 34.39% of the voting securities of the Fund's Institutional Shares and Gradison & Company Inc., Cincinnati, OH, owned 80.64% of the voting securities of the Fund's Cash II Shares, and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Ohio. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. OHIO TAXES. Under existing Ohio laws, distributions made by the Fund will not be subject to Ohio individual income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest from obligations of Ohio or its subdivisions which is exempt from federal income tax; or (ii) interest or dividends from obligations issued by the United States and its territories or possessions or by any authority, commission or instrumentality of the United States which are exempt from state income tax under federal laws. Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to Ohio individual income taxes. Distributions made by the Fund will not be subject to Ohio corporation franchise tax to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest from obligations of Ohio or its subdivisions which is exempt from federal income tax; or (ii) net interest income from obligations issued by the United States and its territories or possessions or by any authority, commission or instrumentality of the United States, which is included in federal taxable income and which is exempt from state income tax under federal laws. Exempt-interest dividends that represent interest from obligations held by the Fund which are issued by Ohio or its political subdivisions will be exempt from any Ohio municipal income tax (even if the municipality is permitted under Ohio law to levy a tax on intangible income). OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers another class of shares called Cash II Shares. Cash II Shares are sold at net asset value primarily to retail customers of financial institutions and are subject to a minimum initial investment of $25,000 over a 90-day period. All classes are subject to certain of the same expenses. Cash II Shares are distributed under a 12b-1 Plan adopted by the Fund and also are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-235-4669. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield for shares. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the shares' tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. OHIO MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--CASH II SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 34.
YEAR ENDED OCTOBER 31, ----------------------------------------------- 1995 1994 1993 1992 1991(A) ----- ----- ----- ----- ------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 - ------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------- Net investment income 0.03 0.02 0.02 0.03 0.02 - ------------------------------------------- LESS DISTRIBUTIONS - ------------------------------------------- Distributions from net investment income (0.03) (0.02) (0.02) (0.03) (0.02) - ------------------------------------------- ----- ----- ----- ----- ------ NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 - ------------------------------------------- ----- ----- ----- ----- ------ TOTAL RETURN (B) 3.30% 2.10% 2.02% 2.90% 2.27% - ------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ------------------------------------------- Expenses 0.87% 0.85% 0.78% 0.76% 0.63%* - ------------------------------------------- Net investment income 3.25% 2.09% 2.01% 2.86% 4.18%* - ------------------------------------------- Expense waiver/reimbursement (c) 0.29% 0.24% 0.19% 0.25% 0.34%* - ------------------------------------------- SUPPLEMENTAL DATA - ------------------------------------------- Net assets, end of period (000 omitted) $188,234 $156,051 $127,017 $133,877 $94,081 - -------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from April 22, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--99.1% - ----------------------------------------------------------------------- OHIO--99.1% ------------------------------------------------------- $ 2,000,000 Anthony Wayne School District, OH, 4.00% BANs, NR $ 2,000,691 12/14/1995 ------------------------------------------------------- 5,875,000 Belmont County, OH Weekly VRDNs (Lesco, Inc.)/ (PNC A-1 5,875,000 Bank, N.A. LOC) ------------------------------------------------------- 1,000,000 Belmont County, OH, County Jail Improvement Notes NR 1,002,306 (Third Series), 4.34% BANs, 8/30/1996 ------------------------------------------------------- 1,675,000 Berea, OH, BANS, 4.07%, 10/24/1996 NR(3) 1,677,671 ------------------------------------------------------- 3,000,000 Brecksville-Broadview Heights CSD, OH, GO Unlimited Tax NR(3) 3,000,667 School Improvement, 5.71% BANs, 1/18/1996 ------------------------------------------------------- 1,175,000 Butler County, OH, Limited GO's, 5.07% BANs, 3/15/1996 NR(3) 1,176,946 ------------------------------------------------------- 2,000,000 Cincinnati City School District, OH, 5.80% TANs, NR(3) 2,001,209 12/29/1995 ------------------------------------------------------- 5,760,000 (a) Cleveland, OH City School District, Energy Conservation A-1+ 5,760,000 Improvement Bonds (Series 1994) Weekly VRDNs (Internationale Nederlanden Bank N.V. LIQ)/ (Internationale Nederlanden Bank N.V. LOC) ------------------------------------------------------- 2,000,000 Cleveland-Cuyahoga County, OH Port Authority, (Series A-1+ 2,000,000 1993) Weekly VRDNs (Rock & Roll Hall of Fame Museum)/(Credit Local de France LOC) ------------------------------------------------------- 1,800,000 Clinton County, OH Hospital Authority Weekly VRDNs P-1 1,800,000 (Clinton Memorial Hospital)/(National City Bank, Columbus, OH LOC) ------------------------------------------------------- 2,000,000 Columbiana County, OH, Adjustable Rate Industrial P-1 2,000,000 Development Revenue Bonds Weekly VRDNs (C & S Land Company Project)/(Bank One, Youngstown, NA LOC) ------------------------------------------------------- 1,800,000 Conneaut, OH, 4.45% BANs, 7/26/1996 NR 1,803,793 -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 1,200,000 Cuyahoga County, OH Hospital Authority Daily VRDNs VMIG1 $ 1,200,000 (University Hospital of Cleveland)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) ------------------------------------------------------- 800,000 Cuyahoga County, OH IDA Weekly VRDNs (Animal Protection VMIG1 800,000 League (Cuyahoga County))/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 1,800,000 Cuyahoga County, OH IDA Weekly VRDNs (East Park P-1 1,800,000 Community, Inc.)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 655,000 Cuyahoga County, OH IDA Weekly VRDNs (Interstate Diesel P-1 655,000 Service, Inc.)/(Huntington National Bank, Columbus, OH LOC) ------------------------------------------------------- 715,000 Cuyahoga County, OH IDA Weekly VRDNs (Parma-Commerce P-1 715,000 Parkway West)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 1,200,000 Cuyahoga County, OH IDA Weekly VRDNs (Premier P-1 1,200,000 Manufacturing Corp.)/(National City Bank, Kentucky LOC) ------------------------------------------------------- 2,000,000 Cuyahoga County, OH IDA, IDRB (Series 1995) Weekly P-1 2,000,000 VRDNs (Avalon Precision Casting Co. Project)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 3,000,000 Dayton, OH, Revenue Refunding Bonds (Series 1993E) VMIG1 3,000,000 Weekly VRDNs (Emery Air Freight Corp.)/(Mellon Bank NA, Pittsburgh LOC) ------------------------------------------------------- 1,700,000 Delaware County, OH, IDRB (Series 1995) Weekly VRDNs P-1 1,700,000 (Air Waves, Inc. Project)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 1,240,000 Elyria, OH, General Limited Tax Various Purpose BANS, NR(3) 1,242,922 4.26%, 10/11/1996 ------------------------------------------------------- 2,000,000 Euclid City School District, OH, 4.83% RANs, 12/15/1995 NR(3) 2,000,416 ------------------------------------------------------- 1,000,000 Franklin County, OH Hospital Facility Authority Weekly VMIG1 1,000,000 VRDNs (Riverside United Methodist Hospital)/(National City Bank, Cleveland, OH LOC) -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 4,500,000 Franklin County, OH IDA Weekly VRDNs P-1 $ 4,500,000 (Heekin Can, Inc.)/(PNC Bank, Ohio, N.A. LOC) ------------------------------------------------------- 3,160,000 Franklin County, OH IDA Weekly VRDNs (Unicorn Leasing P-1 3,160,000 Corp.)/(Fifth Third Bank, Cincinnati LOC) ------------------------------------------------------- 3,670,000 Franklin County, OH IDA, (Series 1995) Weekly VRDNs P-1 3,670,000 (Fabcon L.L.C. Project)/(Norwest Bank Minnesota, Minneapolis LOC) ------------------------------------------------------- 2,000,000 Franklin County, OH IDA, IDRB Weekly VRDNs (Tigerpoly P-1 2,000,000 Manufacturing, Inc.)/(Mitsubishi Bank Ltd, Tokyo LOC) ------------------------------------------------------- 2,000,000 Franklin County, OH, Ltd. GO's (Series 8/95), 4.10% SP-1+ 2,003,106 BANs, 8/23/1996 ------------------------------------------------------- 1,200,000 Gates Mills Village, OH, Water System Improvement BANS, NR 1,201,105 4.10%, 10/17/1996 ------------------------------------------------------- 1,950,000 Hamilton County, OH Health System Weekly VRDNs (West VMIG1 1,950,000 Park Community)/(Fifth Third Bank, Cincinnati LOC) ------------------------------------------------------- 1,500,000 Hamilton County, OH Hospital Facilities Authority, A-1 1,500,000 Revenue Bonds (Series 1986A) Weekly VRDNs (Good Samaritan Hospital) ------------------------------------------------------- 3,000,000 Hamilton, OH, Ltd. Tax GO's, 3.91% BANs, 1/18/1996 NR(3) 3,000,050 ------------------------------------------------------- 2,200,000 Hamilton, OH, Real Estate Acquisition/Electric NR(3) 2,200,259 Improvement System BANs (Series A), 4.02%, 6/14/1996 ------------------------------------------------------- 2,000,000 Holmes County, OH IDA Weekly VRDNs (Poultry A-1+ 2,000,000 Processing)/(Rabobank Nederland, Utrecht LOC) ------------------------------------------------------- 1,250,000 Huber Heights, OH, IDRB (Series 1994) Weekly VRDNs P-1 1,250,000 (Lasermike, Inc. Project)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 1,000,000 Huron City, OH, General Limited Tax Various Purpose, NR 1,001,336 4.49% BANs, 5/31/1996 ------------------------------------------------------- 300,000 Kettering, OH IDA Weekly VRDNs (Center-Plex Venture)/ P-1 300,000 (Society National Bank, Cleveland, OH LOC) -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 1,680,000 Lake County, OH, General and SA Limited Tax Various NR(2) $ 1,681,816 BANS, 4.07%, 10/10/1996 ------------------------------------------------------- 2,885,000 Lorain County, OH, Health Facilities Revenue Bonds P-1 2,885,000 (Series 1992A) Weekly VRDNs (Elyria United Methodist Home)/(Fifth Third Bank, Cincinnati LOC) ------------------------------------------------------- 4,565,000 Lorain Port Authority, OH, (Series 1994) Weekly VRDNs P-1 4,565,000 (Spitzer Great Lakes Ltd., Inc.)/(Bank One, Cleveland, N.A. LOC) ------------------------------------------------------- 1,600,000 Lucas County, OH IDA Weekly VRDNs (Kuhlman Corp.)/ P-1 1,600,000 (Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 1,905,000 Lucas County, OH, Hospital Facility Improvement Revenue P-1 1,905,000 Bonds (Series 93) Weekly VRDNs (Lott Industries, Inc.)/ (National City Bank, Cleveland, OH LOC) ------------------------------------------------------- 300,000 Lucas County, OH, Hospital Improvement Revenue Weekly P-1 300,000 VRDNs (Sunshine Children's Home)/(National City Bank, Cleveland, OH LOC) ------------------------------------------------------- 8,500,000 Lucas County, OH, Hospital Refunding Revenue Bonds P-1 8,500,000 Weekly VRDNs (Riverside Hospital, OH)/(Huntington National Bank, Columbus, OH LOC) ------------------------------------------------------- 3,500,000 Lucas County, OH, Various Purpose Improvement Notes NR 3,501,985 (Series 1994), 5.75% BANs, 11/30/1995 ------------------------------------------------------- 5,325,000 Mahoning County, OH Multifamily HFA Weekly VRDNs A-1 5,325,000 (International Towers, Inc.)/(PNC Bank, N.A. LOC) ------------------------------------------------------- 6,900,000 Mahoning County, OH, Housing Revenue Bonds (Series A-1 6,900,000 1995) Weekly VRDNs (Copeland Oaks Project)/ (Bank One, Akron, N.A. LOC) ------------------------------------------------------- 40,000 Mahoning County, OH, IDR Weekly VRDNs P-1 40,000 (Tru-Cut Die Corp.)/(PNC Bank, Ohio, N.A. LOC) ------------------------------------------------------- 1,120,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal P-1 1,120,000 Products, Inc.)/(Bank One, Columbus, N.A. LOC) -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 2,000,000 Marysville Exempted Village School District, OH, NR $ 2,001,101 General Unlimited Tax School Improvement Bond Anticipation Notes, 4.27% BANs, 12/20/1995 ------------------------------------------------------- 460,000 Medina County, OH, IDR, 4.05% TOBs (Bopco)/(Bank One, P-1 460,000 Akron, N.A. LOC), Optional Tender 3/1/1996 ------------------------------------------------------- 5,400,000 Medina County, OH, Solid Waste Disposal Revenue Bonds P-1 5,400,000 (Series 1995) Weekly VRDNs (Valley City Steel Company Project)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 7,000,000 Montgomery County, OH, Ltd. Tax GO's Certificate of NR(2) 7,022,709 Indebtedness (1995 Series A), 5.00% BANs, 4/26/1996 ------------------------------------------------------- 2,010,000 Montgomery, OH IDA Weekly VRDNs (Bethesda Two Limited A-1 2,010,000 Partnership)/(Huntington National Bank, Columbus, OH LOC) ------------------------------------------------------- 3,600,000 Morrow County, OH, Detention Facilities Bond NR 3,601,564 Anticipation Notes (Series 1995), 4.25% BANs, 4/15/1996 ------------------------------------------------------- 500,000 Muskingham County, OH Hospital Facilities Authority VMIG1 500,000 Weekly VRDNs (Bethesda Care System)/(National City Bank, Columbus, OH LOC) ------------------------------------------------------- 370,000 North Olmsted, OH IDA Weekly VRDNs (Bryant & P-1 370,000 Stratton)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 730,000 North Olmsted, OH IDA, 4.00% TOBs (Therm-All)/ P-1 730,000 (National City Bank, Cleveland, OH LOC), Optional Tender 2/1/1996 ------------------------------------------------------- 4,000,000 North Olmsted, OH, Various Purpose Improvement Notes, NR(3) 4,010,198 (Series 1995), 4.67% BANs, 6/20/1996 ------------------------------------------------------- 2,135,000 Ohio HFA Weekly VRDNs (Westchester Village)/(Society P-1 2,135,000 National Bank, Cleveland, OH LOC) ------------------------------------------------------- 7,405,000 Ohio HFA, 4.40% TOBs (Comerica, Inc.)/(Comerica, Inc. P-1 7,405,000 LOC), Optional Tender 11/1/1995 -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 6,435,000 (a) Ohio HFA, Single Family Mortgage (Series PT-8) Weekly A-1+ $ 6,435,000 VRDNs (GNMA COL)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LIQ) ------------------------------------------------------- 2,000,000 Ohio State Air Quality Development Authority, (Series P-1 2,000,000 1998A) Weekly VRDNs (PPG Industries, Inc.) ------------------------------------------------------- 1,800,000 Ohio State Air Quality Development Authority, 3.75% CP AAA 1,800,000 (Cincinnati Gas and Electric Co.)/(Union Bank of Switzerland, Zurich LOC), Mandatory Tender 11/7/1995 ------------------------------------------------------- 3,000,000 Ohio State Air Quality Development Authority, 3.75% CP AAA 3,000,000 (Cincinnati Gas and Electric Co.)/(Union Bank of Switzerland, Zurich LOC), Mandatory Tender 11/9/1995 ------------------------------------------------------- 4,500,000 Ohio State Air Quality Development Authority, 3.80% CP A-1+ 4,500,000 (Cincinnati Gas and Electric Co.)/(J.P. Morgan Delaware, Wilmington LOC), Mandatory Tender 12/8/1995 ------------------------------------------------------- 1,000,000 Ohio State Water Development Authority Weekly VRDNs P-1 1,000,000 (PPG Industries, Inc.) ------------------------------------------------------- 2,500,000 Ohio State Water Development Authority, Multimodal A-1+ 2,500,000 Water Development (Series 1993) Weekly VRDNs (Timken Co.)/(Wachovia Bank of Georgia NA, Atlanta LOC) ------------------------------------------------------- 5,000,000 Ohio State Water Development Authority, Ohio PCR Bonds A-1+ 5,000,000 (Series 1989) Weekly VRDNs (Duquesne Light Power Co.)/(Barclays Bank PLC, London LOC) ------------------------------------------------------- 3,500,000 Ohio State Water Development Authority, Pollution AAA 3,515,335 Control Facilities Revenue Bonds, 4.75% TOBs (Union Bank of Switzerland, Zurich LOC), Optional Tender 5/1/1996 ------------------------------------------------------- 700,000 Ohio State Weekly VRDNs (John Carroll University, OH)/ P-1 700,000 (PNC Bank, N.A. LOC) ------------------------------------------------------- 1,420,000 Ohio State, IDR (Series 1991) Weekly VRDNs (Standby A-1+ 1,420,000 Screw, Inc.)/(National City Bank, Columbus, OH LOC) ------------------------------------------------------- 1,400,000 Ohio State, IDRB (Series 1994) Weekly VRDNs (Anomatic P-1 1,400,000 Corporation)/(National City Bank, Columbus, OH LOC) -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 1,350,000 Orrville, OH IDA Weekly VRDNs (O.S. Associates/ A-1 $ 1,350,000 Contours, Inc.)/(National City Bank, Cleveland, OH LOC) ------------------------------------------------------- 1,000,000 Pickaway County, OH IDA Weekly VRDNs P-1 1,000,000 (PPG Industries, Inc.) ------------------------------------------------------- 210,000 Portage County, OH IDA Weekly VRDNs P-1 210,000 (D & W Associates)/(Bank One, Akron, N.A. LOC) ------------------------------------------------------- 400,000 Portage County, OH IDA, 4.05% TOBs (Neidlinger)/ P-1 400,000 (Society National Bank, Cleveland, OH LOC), Optional Tender 3/1/1996 ------------------------------------------------------- 900,000 Portage County, OH IDA, Adjustable Rate Industrial P-1 900,000 Revenue Bonds Weekly VRDNs (Lovejoy Industries)/(Star Bank, NA, Cincinnati LOC) ------------------------------------------------------- 5,000,000 Richland County, OH, Special Assessment Limited Tax NR 5,002,622 Sewer Improvement BANS (Series 1995), 4.25%, 12/14/1995 ------------------------------------------------------- 1,000,000 Rickenbacker, OH Port Authority, (Series 1992) Weekly P-1 1,000,000 VRDNs (Rickenbacker Holdings, Inc.)/(Bank One, Columbus, N.A. LOC) ------------------------------------------------------- 1,250,000 Ross County, OH, Hospital Facilities Revenue Bonds AA- 1,250,000 (Series 1995) Weekly VRDNs (Medical Center Hospital Project)/(Fifth Third Bank, Cincinnati LOC) ------------------------------------------------------- 1,200,000 Sharonville, OH, IDR Weekly VRDNs (Xtek, Inc.)/(Fifth VMIG1 1,200,000 Third Bank, Cincinnati LOC) ------------------------------------------------------- 1,150,000 Shelby City, OH, General Ltd. Tax Water System NR 1,152,218 Improvement BANS (Series 1995), 4.50%, 8/22/1996 ------------------------------------------------------- 880,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating)/ P-1 880,000 (Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 2,000,000 Solon, OH, IDRB (Series 1995) Weekly VRDNs (Cleveland A+ 2,000,000 Twist Drill Company)/(Nationsbank of Georgia, N.A. LOC) ------------------------------------------------------- 2,000,000 Springdale, OH, BANS (Series 1995), 4.15%, 9/20/1996 NR 2,003,375 ------------------------------------------------------- 1,400,000 Stark County, OH IDR Weekly VRDNs (Society National P-1 1,400,000 Bank, Cleveland, OH LOC) -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 2,345,000 Stark County, OH IDR, (Series 1994) Weekly VRDNs (Wilk P-1 $ 2,345,000 of Morris)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 2,685,000 Stark County, OH IDR, Sewer District Improvements Notes NR(3) 2,689,317 (Series 1995-1), 5.00% BANs, 4/3/1996 ------------------------------------------------------- 2,000,000 Stark County, OH IDR, Various Purpose Notes (Series NR(3) 2,003,216 1995-1), 5.00% BANs, 4/3/1996 ------------------------------------------------------- 1,350,000 Strongsville, OH, Adjustable Rate Demand IDRB (Series A-1 1,350,000 1994) Weekly VRDNs (Nutro Machinery Corp., Project)/(Huntington National Bank, Columbus, OH LOC) ------------------------------------------------------- 2,900,000 Summit County, OH IDR Weekly VRDNs (Maison Aine Limited P-1 2,900,000 Partnership)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 4,500,000 Summit County, OH IDR, (Series 1994) Weekly VRDNs P-1 4,500,000 (Harry London Candies, Inc.)/(Bank One, Akron, N.A. LOC) ------------------------------------------------------- 1,245,000 Summit County, OH IDR, 4.00% TOBs (Matech Machine Tool P-1 1,245,000 Co.)/(Bank One, Akron, N.A. LOC), Optional Tender 5/1/1996 ------------------------------------------------------- 385,000 Summit County, OH IDR, 4.05% TOBs (Keltec Industries)/ P-1 385,000 (Bank One, Akron, N.A. LOC), Optional Tender 3/1/1996 ------------------------------------------------------- 795,000 Summit County, OH IDR, 4.05% TOBs (Universal Rack)/ P-1 795,000 (National City Bank, Cleveland, OH LOC), Optional Tender 3/1/1996 ------------------------------------------------------- 1,115,000 Summit County, OH IDR, 4.40% TOBs (Rogers Industrial P-1 1,115,000 Products, Inc.)/(Bank One, Akron, N.A. LOC), Optional Tender 11/1/1995 ------------------------------------------------------- 795,000 Summit County, OH IDR, 4.70% TOBs (Bechmer-Boyce P-1 795,000 Project)/(Society National Bank, Cleveland, OH LOC), Optional Tender 1/15/1996 ------------------------------------------------------- 910,000 Summit County, OH IDR, 4.85% TOBs (S.D. Meyers, Inc.)/ P-1 910,000 (Bank One, Akron, N.A. LOC), Optional Tender 2/15/1996 -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 1,000,000 Summit County, OH IDR, Adjustable Rate Bonds (Series P-1 $ 1,000,000 1994) Weekly VRDNs (Austin Printing Co., Inc.)/ (Bank One, Akron, N.A. LOC) ------------------------------------------------------- 1,000,000 Summit County, OH IDR, Adjustable Rate IDRB (Series P-1 1,000,000 1995) Weekly VRDNs (Cardtech Project (OH)/ (Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 2,890,000 Summit County, OH IDR, Variable Rate Demand IDRB P-1 2,890,000 (Series 1994B) Weekly VRDNs (Harry London Candies, Inc.)/(Bank One, Akron, N.A. LOC) ------------------------------------------------------- 2,000,000 Summit County, OH, GO Various Purpose Notes (Series NR(3) 2,002,317 1995A), 5.00% BANs, 3/7/1996 ------------------------------------------------------- 1,000,000 Toledo-Lucas County, OH Port Authority, IDA Weekly AAA 1,000,000 VRDNs (Medusa Corp.)/(Bayerische Vereinsbank AG, Munich LOC) ------------------------------------------------------- 2,700,000 Trumbull County, OH IDA, (Series 1989) Weekly VRDNs A-1 2,700,000 (McDonald Steel Corp.)/(PNC Bank, N.A. LOC) ------------------------------------------------------- 1,355,000 Trumbull County, OH IDA, Adjustable Rate IDR Refunding P-1 1,355,000 Bonds (Series 1994) Weekly VRDNs (Churchill Downs, Inc.)/(Bank One, Columbus, N.A. LOC) ------------------------------------------------------- 3,000,000 Trumbull County, OH, Correctional Facilities BANs NR 3,001,643 (Series 1995), 4.83%, 4/11/1996 ------------------------------------------------------- 3,000,000 University of Cincinnati, OH, General Receipts SP-1 3,005,929 Anticipation Notes-Series T, 4.25% BANs, 8/28/1996 ------------------------------------------------------- 4,100,000 Westlake, OH, IDR Weekly VRDNs (Kahal Limited P-1 4,100,000 Partnership)/(Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 1,145,000 Willoughby City, OH, Variable Rate Demand IDR Refunding P-1 1,145,000 Bonds (Series 1995A) Weekly VRDNs (Pine Ridge Shopping Center Company Project)/(Star Bank, NA, Cincinnati LOC) -------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------- $ 1,245,000 Willoughby City, OH, Variable Rate Demand IDR Revenue P-1 $ 1,245,000 Bonds (Series 1995 B) Weekly VRDNs (Pine Ridge Shopping Center Company Project)/(Star Bank, NA, Cincinnati LOC) ------------------------------------------------------- 1,600,000 Wood County, OH Weekly VRDNs (Principle Business P-1 1,600,000 Enterprises)/(National City Bank, Cleveland, OH LOC) ------------------------------------------------------- 2,200,000 Wood County, OH, EDRB Weekly VRDNs (Roe Inc. P-1 2,200,000 Project)/(Huntington National Bank, Columbus, OH LOC) ------------------------------------------------------- 5,300,000 (a) Youngstown City School District, OH, Municipal A-1+ 5,300,000 Installment Trust Receipts (Series 1994-A) Weekly VRDNs (Internationale Nederlanden Bank N.V. LIQ)/ (Internationale Nederlanden Bank N.V. LOC) ------------ ------------------------------------------------------- $258,712,822 TOTAL INVESTMENTS (AT AMORTIZED COST)(B) ------------ -------------------------------------------------------
Securities that are subject to Alternative Minimum Tax represent 45.2% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. These securities have been determined to be liquid under criteria established by the Board of Trustees. At the end of the period, these securities amounted to $17,495,000 which represent 6.7% of net assets. (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($261,165,455) at October 31, 1995. OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronyms are used throughout this portfolio: BANs --Bond Anticipation Notes COL --Collateralized CP --Commercial Paper CSD --Central School District EDRB --Economic Development Revenue Bonds GNMA --Government National Mortgage Association GO --General Obligation HFA --Housing Finance Authority IDA --Industrial Development Authority IDR --Industrial Development Revenue IDRB --Industrial Development Revenue Bonds LIQ --Liquidity Agreement LOC --Letter of Credit PCR --Pollution Control Revenue PLC --Public Limited Company RANs --Revenue Anticipation Notes SA --Support Agreement TANs --Tax Anticipation Notes TOBs --Tender Option Bonds VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $258,712,822 - ------------------------------------------------------------------------------- Cash 334,964 - ------------------------------------------------------------------------------- Income receivable 2,498,541 - ------------------------------------------------------------------------------- Receivable for shares sold 739 - ------------------------------------------------------------------------------- Deferred expenses 7,251 - ------------------------------------------------------------------------------- ------------ Total assets 261,554,317 - ------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------- Payable for shares redeemed $ 48,000 - -------------------------------------------------------------------- Income distribution payable 223,569 - -------------------------------------------------------------------- Accrued expenses 117,293 - -------------------------------------------------------------------- -------- Total liabilities 388,862 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 261,165,455 shares outstanding $261,165,455 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share: - ------------------------------------------------------------------------------- INSTITUTIONAL SHARES: - ------------------------------------------------------------------------------- $72,931,089 / 72,931,089 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------ CASH II SHARES: - ------------------------------------------------------------------------------- $188,234,366 / 188,234,366 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ------------------------------------------------------------------------------------ Interest $9,872,940 - ------------------------------------------------------------------------------------ EXPENSES: - ------------------------------------------------------------------------------------ Investment advisory fee $ 957,142 - ---------------------------------------------------------------------- Administrative personnel and services fee 181,139 - ---------------------------------------------------------------------- Custodian fees 67,328 - ---------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 95,590 - ---------------------------------------------------------------------- Directors'/Trustees' fees 1,888 - ---------------------------------------------------------------------- Auditing fees 14,191 - ---------------------------------------------------------------------- Legal fees 2,818 - ---------------------------------------------------------------------- Portfolio accounting fees 54,785 - ---------------------------------------------------------------------- Distribution services fee--Cash II Shares 493,611 - ---------------------------------------------------------------------- Shareholder services fee--Institutional Shares 186,871 - ---------------------------------------------------------------------- Shareholder services fee--Cash II Shares 411,342 - ---------------------------------------------------------------------- Share registration costs 49,625 - ---------------------------------------------------------------------- Printing and postage 18,607 - ---------------------------------------------------------------------- Insurance premiums 5,770 - ---------------------------------------------------------------------- Miscellaneous 15,305 - ---------------------------------------------------------------------- ---------- Total expenses 2,556,012 - ---------------------------------------------------------------------- Waivers-- - ---------------------------------------------------------- Waiver of investment advisory fee $ (95,512) - ---------------------------------------------------------- Waiver of distribution services fee--Cash II Shares (411,342) - ---------------------------------------------------------- Waiver of shareholder services fee--Institutional Shares (186,871) - ---------------------------------------------------------- --------- Total waivers (693,725) - ---------------------------------------------------------------------- ---------- Net expenses 1,862,287 - ------------------------------------------------------------------------------------ ---------- Net investment income $8,010,653 - ------------------------------------------------------------------------------------ ----------
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ------------------------------- 1995 1994 --------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - -------------------------------------------------------------- OPERATIONS-- - -------------------------------------------------------------- Net investment income $ 8,010,653 $ 4,456,860 - -------------------------------------------------------------- --------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS-- - -------------------------------------------------------------- Distributions from net investment income - -------------------------------------------------------------- Institutional Shares (2,660,655) (1,561,810) - -------------------------------------------------------------- Cash II Shares (5,349,998) (2,895,050) - -------------------------------------------------------------- --------------- ------------- Change in net assets resulting from distributions to shareholders (8,010,653) (4,456,860) - -------------------------------------------------------------- --------------- ------------- SHARE TRANSACTIONS-- - -------------------------------------------------------------- Proceeds from sale of Shares 1,275,288,208 809,574,268 - -------------------------------------------------------------- Net asset value of Shares issued to shareholders in payment of distributions declared 5,470,332 2,932,696 - -------------------------------------------------------------- Cost of Shares redeemed (1,238,142,557) (802,723,017) - -------------------------------------------------------------- --------------- ------------- Change in net assets resulting from share transactions 42,615,983 9,783,947 - -------------------------------------------------------------- --------------- ------------- Change in net assets 42,615,983 9,783,947 - -------------------------------------------------------------- NET ASSETS: - -------------------------------------------------------------- Beginning of period 218,549,472 208,765,525 - -------------------------------------------------------------- --------------- ------------- End of period $ 261,165,455 $ 218,549,472 - -------------------------------------------------------------- --------------- -------------
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Ohio Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers two classes of shares: Institutional Shares and Cash II Shares. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 71.6% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or supported (backed) by a letter of credit for any one institution or agency does not exceed 12.3% of total investments. OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1995 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST -------------------------------------------------- ---------------- ---------------- Cleveland OH City School District, Energy Conservation Improvement Bonds (Series 1994) Weekly VRDNs 10/02/95 $5,760,000 Ohio HFA, Single Family Mortgage (Series PT-8) Weekly VRDNs 06/16/94 6,435,000 Youngstown City School District, OH, Municipal Installment Trust Receipts (Series 1994-A) Weekly VRDNs 08/02/95 5,300,000
OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1995, capital paid-in aggregated $261,165,455. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, ---------------------------- INSTITUTIONAL SHARES 1995 1994 - ----------------------------------------------------------------- ------------ ------------ Shares sold 571,719,826 275,545,260 - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 277,721 99,198 - ----------------------------------------------------------------- Shares redeemed (561,565,338) (294,893,757) - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional share transactions 10,432,209 (19,249,299) - ----------------------------------------------------------------- ------------ ------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ---------------------------- CASH II SHARES 1995 1994 - ----------------------------------------------------------------- ------------ ------------ Shares sold 703,568,382 534,029,008 - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 5,192,611 2,833,498 - ----------------------------------------------------------------- Shares redeemed (676,577,219) (507,829,260) - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Cash II share transactions 32,183,774 29,033,246 - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Fund share transactions 42,615,983 9,783,947 - ----------------------------------------------------------------- ------------ ------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee of the Fund. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Services Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Cash II Shares. The Plan provides that the Fund may incur distribution expenses up to .30 of 1% of the average daily net assets of the Cash II shares, annually, to compensate FSC. FSC may voluntarily choose to waive a portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of daily average net assets of the Fund for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. For the fiscal year ended October 31, 1995, Institutional Shares fully waived its shareholder services fee. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- PORTFOLIO ACCOUNTING FEES--FServ also maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS--During the period ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common Officers. These transactions were made at current market value pursuant to Rule 17a-7 under the Act amounting to $500,170,000 and $491,515,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Ohio Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Ohio Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights (see pages 2 and 15 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Ohio Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 ADDRESSES - -------------------------------------------------------------------------------- Ohio Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 - ----------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - ----------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - -----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- OHIO MUNICIPAL CASH TRUST INSTITUTIONAL SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 CUSIP 314229857 1030105A-IS (12/95) OHIO MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH II SHARES INSTITUTIONAL SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus(es) of Ohio Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal Trust (the "Trust") dated December 31, 1995. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-235-4669. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1995 FEDERATED SECURITIES CORP. Distributor A subsidiary of Federated Investors INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 2 When-Issued and Delayed Delivery Transactions 3 Repurchase Agreements 3 Reverse Repurchase Agreements 3 Credit Enhancement 4 OHIO INVESTMENT RISKS 4 INVESTMENT LIMITATIONS 6 Regulatory Compliance 9 FEDERATED MUNICIPAL TRUST MANAGEMENT 9 Share Ownership 10 Trustees Compensation 18 Trustee Liability 20 INVESTMENT ADVISORY SERVICES 20 Investment Adviser 20 Advisory Fees 20 BROKERAGE TRANSACTIONS 21 OTHER SERVICES 22 Fund Administration 22 Custodian and Portfolio Recordkeeper 23 Transfer Agent 13 Independent Public Accountants 13 DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT 23 DETERMINING NET ASSET VALUE 25 REDEMPTION IN KIND 26 MASSACHUSETTS PARTNERSHIP LAW 26 THE FUND'S TAX STATUS 27 PERFORMANCE INFORMATION 15 Yield 27 Effective Yield 28 Tax-Equivalent Yield 28 Tax-Equivalency Table 28 Total Return 30 Performance Comparisons 30 ABOUT FEDERATED INVESTORS 31 Mutual Fund Market 32 Institutional Clients 32 Trust Organizations 32 Broker/Dealers and Bank Broker/Dealer Subsidiaries 32 APPENDIX 19 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security, the issuer of any demand feature applicable to the security, or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of non-appropriation"); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1, or 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 rating categories. See "Regulatory Compliance." WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated on the Fund`s records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument in return for a percentage of the instrument's market value in cash and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but does not ensure this result. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are: segregated on the Fund's records at the trade date; marked to market daily; and maintained until the transaction is settled. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit-enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the "credit enhancer"), rather than the issuer. HOWEVER, CREDIT-ENHANCED SECURITIES WILL NOT BE TREATED AS HAVING BEEN ISSUED BY THE CREDIT ENHANCER FOR DIVERSIFICATION PURPOSES, UNLESS THE FUND HAS INVESTED MORE THAN 10% OF ITS ASSETS IN SECURITIES ISSUED, GUARANTEED OR OTHERWISE CREDIT ENHANCED BY THE CREDIT ENHANCER, IN WHICH CASE THE SECURITIES WILL BE TREATED AS HAVING BEEN ISSUED BY BOTH THE ISSUER AND THE CREDIT ENHANCER. OHIO INVESTMENT RISKS The Fund invests in obligations of Ohio (the "State") issuers which result in the Fund's performance being subject to risks associated with the overall conditions present within the State. The following information is a brief summary of the prevailing economic conditions and general summary of the State's financial condition. This information is based on official statements relating to securities that are believed to be reliable but should not be considered as a complete description of all relevant information. The Ohio economy is largely composed of manufacturing which is concentrated in the automobile sector and other durable goods. The exposure to these industries particularly the auto sector leaves the State vulnerable to an economic slowdown associated with business cycles. The State has diversified its economy somewhat over the past decade with services and trade composing roughly 50% of the economy. Unemployment in Ohio over the past two years has been below the national average, but population growth as in many great lakes states has been stagnant. The State fully depleted the budget stabilization fund that exceeded $300 million, to achieve balanced budgets as a result of the most recent recession. The State acted promptly in addressing the fall in revenue with an expansion of the sales tax and cuts in appropriations. As a result of prudent financial management, State restored $21 million to the budget stabilization fund in fiscal 1993. Strong performance in fiscal 1994 and 1995 resulted in reserve levels that are well above the levels of 1990. Ohio's budge stabilization fund is now above $800 million. The overall condition of the State is further demonstrated by its debt ratings. Ohio, rated Aaa by Moody's Investors Service, Inc. in the 1970's, was downgraded to Aa in 1979 and has maintained this rating since the downgrade. Standard & Poor's Ratings Group first rated the State in 1984 at AA; that has remained unchanged. The Fund's concentration in securities issued by the State and its political subdivisions provides a greater level of risk than a fund whose assets are diversified across numerous states and municipal issuers. The ability of the State or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the State; and the underlying fiscal condition of the State, its counties, and its municipalities. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as are necessary for the clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money and engage in reverse repurchase agreements in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of the value of its total assets are outstanding. During the period any reverse repurchase agreements are outstanding, the Fund will restrict the purchase of portfolio securities to money market instruments maturing on or before the expiration date of the reverse repurchase agreements, but only to the extent necessary to assure completion of the reverse repurchase agreements. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may acquire publicly or nonpublicly issued Ohio municipal securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies, limitations, and its Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, or real estate limited partnerships, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above limitations cannot be changed without shareholder approval. The following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers (including companies responsible for paying principal and interest on industrial development bonds) which have records of less than three years of continuous operations, including the operation of any predecessor. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES The Fund will not purchase or retain the securities of any issuer if the officers and Trustees of the Trust or its investment adviser, owning individually more than .50 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. INVESTING IN MINERALS The Fund will not purchase or sell interests in oil, gas, or other mineral exploration or development programs or leases, although it may purchase the securities of issuers which invest in or sponsor such programs. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in its prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments, as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President of the Trust . Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds; formerly, Senior Partner, Ernst & Young LLP. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; President, Northgate Village Development Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Director, Trustee, or Managing General Partner of the Funds; formerly, President, Naples Property Management, Inc. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee, or Managing General Partner of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine and Member, Board of Trustees, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director, Trustee, or Managing General Partner of the Funds. Edward L. Flaherty, Jr.@ Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director, Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson * Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. and Federated Administrative Services. Peter E. Madden Seacliff 562 Bellevue Avenue Newport, RI Birthdate: March 16, 1942 Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, Trustee, or Managing General Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation. Gregor F. Meyer Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General Partner of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director, Trustee or Managing General Partner of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics and Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; founding Chairman, National Advisory Council for Environmental Policy and Technology and Federal Emergency Management Advisory Board. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/marketing consultant; Conference Coordinator, Non-profit entities; Director, Trustee, or Managing General Partner of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative Services, Federated Services Company, and Federated Shareholder Services; 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 of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. David M. Taylor Federated Investors Tower Pittsburgh, PA Birthdate: January 13, 1947 Treasurer Senior Vice President, Controller, and Trustee, Federated Investors; Controller, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., and Passport Research, Ltd.; Senior Vice President, Federated Shareholder Services; Vice President, Federated Administrative Services; Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President and Secretary Executive Vice President, Secretary, General Counsel, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds. * This Trustee is deemed to be an "interested person" as defined in the Investment Company Act of 1940. @ Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. As used in the table above, "The Funds" and "Funds" mean the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5 Years; 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; 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 U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut 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; The Virtus Funds; World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 4, 1995, the following shareholder(s) of record owned 5% or more of the outstanding Institutional Shares of the Ohio Municipal Cash Trust: Key Trust Co., Cleveland, OH, 8.17%; MAHCO, Youngstown, OH, 5.15%; PANABCO, Newark, OH, 7.85%; Parcol & Co., Akron, OH, 34.39%; and SNBSO & Co., Springfield, OH, 6.10%. As of December 4, 1995, the following shareholder(s) of record owned 5% or more of the outstanding Cash II Shares of the Ohio Municipal Cash Trust: First National Bank of Ohio, Akron, OH, 5,89%; and Gradison & Company Inc., Cincinnati, OH, 80.64%. TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 68 other investment companies in the Fund Complex Thomas G. Bigley $2,458 $20,688 for the Trust and Trustee 49 other investment companies in the Fund Complex John T. Conroy, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex William J. Copeland $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Peter E. Madden $2,757 $90,563 for the Trust and Trustee 64 other investment companies in the Fund Complex Gregor F. Meyer $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex John E. Murray, Jr., $1,762 $0 for the Trust and Trustee 64 other investment companies in the Fund Complex Wesley W. Posvar $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Marjorie P. Smuts $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1995. #The aggregate compensation is provided for the Trust which is comprised of fifteen portfolios. +The information is provided for the last calendar year. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1995, 1994, and 1993, the adviser earned $957,142, $818,724, and $813,048, respectively, of which $95,512, $133,035, and $392,961, respectively, were waived. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this 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 fees. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal years ended October 31, 1995, 1994, 1993, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc., also a subsidiary of Federated Investors, served as the Fund's Administrator. (For purposes of this Statement of Additional Information, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the "Administrators".) For the fiscal year ended October 31, 1995, Federated Administrative Services earned $181,139. For the fiscal year ended ended October 31, 1994, the Administrators collectively earned $209,077. For the fiscal year ended ended October 31, 1993, Federated Administrative Services, Inc., earned $325,056. Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, holds approximately 20% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. CUSTODIAN AND PORTFOLIO RECORDKEEPER State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. TRANSFER AGENT As transfer agent, Federated Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on the size, type and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT With respect to Cash II Shares, the Fund has adopted a Distribution Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange Commission pursuant to the Investment Company Act of 1940. Additionally, the Fund has adopted a Shareholder Service Agreement with respect to both Cash II Shares and Institutional Shares. These arrangements permit the payment of fees to financial institutions, the distributor, and Federated Shareholder Services, to stimulate distribution activities and to cause services to be provided to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities 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 Trustees expect that the Fund will be able to achieve a more predictable flow of cash for investment purposes and to meet redemptions. This will facilitate more efficient portfolio management and assist the Fund in 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, 1995, payments in the amount of $493,611 were made pursuant to the Distribution Plan on behalf of Cash II Shares, of which $411,342 was waived. In addition, for this period, the Fund's Cash II Shares and Institutional Shares paid shareholder services fees in the amount of $411,342 and $186,871, respectively, of which $0 and $186,871, respectively, were waivedi. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. For the seven-day period ended October 31, 1995, the yields for Cash II Shares and Institutional Shares were 3.29% and 3.59%, respectively. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended October 31, 1995, the effective yields for Cash II Shares and Institutional Shares were 3.34% and 3.65%, respectively. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal rate for individuals) and assuming that income is 100% exempt. For the seven-day period ended October 31, 1995, the tax-equivalent yields for Cash II Shares and Institutional Shares were 6.22% and 6.79%, respectively. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a "tax-free" investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1995 State of Ohio FEDERAL TAX BRACKET: 15.00% 28.00% 31.00% 36.00% 39.60% COMBINED FEDERAL AND STATE TAX BRACKET: 19.457% 33.201% 37.900% 43.500% 47.100% SINGLE $1- $23,351- $56,551- $117,951- OVER RETURN 23,350 56,550 117,950 256,500 256,500 Tax-Exempt Yield Taxable Yield Equivalent 1.50% 1.86% 2.25% 2.42% 2.65% 2.84% 2.00% 2.48% 2.99% 3.22% 3.54% 3.78% 2.50% 3.10% 3.74% 4.03% 4.42% 4.73% 3.00% 3.72% 4.49% 4.83% 5.31% 5.67% 3.50% 4.35% 5.24% 5.64% 6.19% 6.62% 4.00% 4.97% 5.99% 6.44% 7.08% 7.56% 4.50% 5.59% 6.74% 7.25% 7.96% 8.51% 5.00% 6.21% 7.49% 8.05% 8.85% 9.45% 5.50% 6.83% 8.23% 8.86% 9.73% 10.40% 6.00% 7.45% 8.98% 9.66% 10.62% 11.34% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of Fund shares. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local income taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. For for the one-year period ended October 31, 1995, and for the period from April 22, 1991 (date of initial public investment) through October 31, 1995, the average annual total returns for Cash II Shares were 3.30% and 2.79%, respectively, and average annual total returns for Institutional Shares were 3.61% and 3.09%, respectively. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: O LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. o MONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1994, Federated Investors managed more than $31 billion in assets across approximately 43 money market funds, including 17 government, 8 prime and 18 municipal with assets approximating $17 billion, $7.4 billion and $6.6 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $2 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. *Source: Investment Company Institute TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity concerns and market access risks unique to notes. SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus sign (+) designation. SP-2 Satisfactory capacity to pay principal and interest. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a variable rate demand feature. The first rating (long-term rating) addresses the likelihood of repayment of principal and interest when due, and the second rating (short-term rating) describes the demand characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long- term and the short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. LONG-TERM DEBT RATINGS AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rate "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATINGS Moody's Investor Service, Inc. (Moody's) short-term ratings are designated Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG ratings is to provide investors with a simple system by which the relative investment qualities of short-term obligations may be evaluated. MIG1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad based access to the market for refinancing. MIG2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the first representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the second representing an evaluation of the degree of risk associated with the demand feature. The VMIG rating can be assigned a 1 or 2 designation using the same definitions described above for the MIG rating. COMMERCIAL PAPER (CP) RATINGS P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short- term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well established industries, high rates of return on funds employed, conservative capitalization structure with moderate reliance on debt and ample asset protection, broad margins in earning coverage of fixed financial charges and high internal cash generation, well-established access to a range of financial markets and assured sources of alternate liquidity P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short- term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. LONG-TERM DEBT RATINGS AAA Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes is can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in AAA securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. NR Indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P or Moody's with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated A-1 or P-1. NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated "AAA" by S&P or "Aaa" by Moody's. NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated "AA" by S&P or "Aa" by Moody's. NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated "A" by S&P or Moody's. Cusip 314229840 Cusip 314229857 VIRGINIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS The Institutional Service Shares of Virginia Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Virginia municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Virginia, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and the income tax imposed by the Commonwealth of Virginia consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - -------------------------------------------------- FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES 2 - -------------------------------------------------- GENERAL INFORMATION 3 - -------------------------------------------------- INVESTMENT INFORMATION 3 - -------------------------------------------------- Investment Objective 3 Investment Policies 3 Virginia Municipal Securities 6 Investment Risks 6 Non-Diversification 7 Investment Limitations 7 FUND INFORMATION 7 - -------------------------------------------------- Management of the Fund 7 Distribution of Institutional Service Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - -------------------------------------------------- HOW TO PURCHASE SHARES 10 - -------------------------------------------------- Special Purchase Features 10 HOW TO REDEEM SHARES 11 - -------------------------------------------------- Special Redemption Features 12 ACCOUNT AND SHARE INFORMATION 12 - -------------------------------------------------- TAX INFORMATION 13 - -------------------------------------------------- Federal Income Tax 13 State and Local Taxes 14 OTHER CLASSES OF SHARES 14 - -------------------------------------------------- PERFORMANCE INFORMATION 14 - -------------------------------------------------- FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 15 - -------------------------------------------------- FINANCIAL STATEMENTS 16 - -------------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 28 - -------------------------------------------------- ADDRESSES 29 - --------------------------------------------------
I SUMMARY OF FUND EXPENSES - --------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................... None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)....................................................................... None Redemption Fee (as a percentage of amount redeemed, if applicable)............................... None Exchange Fee..................................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)................................................................ 0.23% 12b-1 Fee........................................................................................ None Total Other Expenses............................................................................. 0.36% Shareholder Services Fee (after waiver) (2)......................................... 0.10% Total Operating Expenses (3)............................................................. 0.59%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The maximum shareholder services fee is 0.25%. (3) The total operating expenses would have been 0.91% absent the voluntary waivers of a portion of the management fee and a portion of the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Institutional Service Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ----------------------------------------------------------------- --------- --------- --------- --------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period................................................. $6 $19 $33 $74
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 1 VIRGINIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 28.
YEAR ENDED OCTOBER 31, -------------------------------- 1995 1994 1993(a) - ------------------------------------------------ --------- --------- -------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------ Net investment income 0.03 0.02 0.003 - ------------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------------ Distributions from net investment income (0.03) (0.02) (0.003) - ------------------------------------------------ --------- --------- -------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------ --------- --------- -------- --------- --------- -------- TOTAL RETURN (b) 3.46% 2.44% 0.34% - ------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------ Expenses 0.59% 0.40% 0.19%* - ------------------------------------------------ Net investment income 3.38% 2.42% 2.67%* - ------------------------------------------------ Expense waiver/reimbursement (c) 0.32% 0.37% 1.04%* - ------------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------------ Net assets, end of period (000 omitted) $127,083 $100,084 $45,648 - ------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from September 16, 1993 (date of initial public investment) to October 31, 1993. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) 2 GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Trustees have established two classes of shares known as Institutional Service Shares and Institutional Shares. This prospectus relates only to Institutional Service Shares of the Fund, which are designed primarily for financial institutions acting in an agency capacity as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term Virginia municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Virginia taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares aew currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the income tax imposed by the Commonwealth of Virginia consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Virginia municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and the income tax imposed by the Commonwealth of Virginia or at least 80% of its net assets will be invested in obligations, the interest income from which is exempt from federal regular and Virginia state income tax (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Virginia and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political 3 subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and the income tax imposed by the Commonwealth of Virginia ("Virginia Municipal Securities"). Examples of Virginia Municipal Securities include, but are not limited to: - tax and revenue anticipation notes ("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 debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Virginia Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Virginia Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. These obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. 4 CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic 5 bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Virginia Municipal Securities is subject to the federal alternative minimum tax. VIRGINIA MUNICIPAL SECURITIES Virginia Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Virginia Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Virginia Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Virginia Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Virginia Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Virginia Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Virginia Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Virginia Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Virginia Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints 6 upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other 7 expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989 is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Board of Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES Federated Securities Corp. is the principal distributor for Institutional Service Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of the Institutional Service Shares, computed at an annual rate, to provide personal services for shareholders and to provide the maintenance of shareholder accounts (shareholder services). From time to time, and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive 8 fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. With respect to Institutional Service Shares, in addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance will be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS -------------------- ------------------------------------ .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of Institutional Service Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. 9 HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $25,000 within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o of State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Virginia Municipal Cash Trust, Institutional Service Shares; Fund Number (This number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to Virginia Municipal Cash Trust -- Institutional Service Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. 10 HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event 11 more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. The check writing service allows shareholders to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account 12 balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. As of December 4, 1995, HAMAC & Co., Richmond, VA, owned 31.48% of the voting securities of the Fund's Institutional Shares, and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. 13 STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Virginia. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. VIRGINIA TAXES. Under existing Virginia laws, distributions made by the Fund will not be subject to Virginia income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest from obligations issued by or on behalf of the Commonwealth of Virginia or any political subdivision thereof; or (ii) interest from obligations issued by a territory or possession of the United States or any political subdivision thereof which federal law exempts from state income taxes. Conversely, to the extent that distributions made by the Fund are attributable to other types of obligations, such distributions will be subject to Virginia income taxes. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers another class of shares called Institutional Shares that are sold primarily to financial institutions acting in a fiduciary capacity. Institutional Shares are sold at net asset value and are subject to a Shareholder Services Agreement. Investments in Institutional Shares are subject to a minimum initial investment of $25,000 within a 90-day period. Institutional Service Shares and Institutional Shares are subject to certain of the same expenses. Expense differences, however, between Institutional Service Shares and Institutional Shares may affect the performance of each class. To obtain more information and a prospectus for Institutional Shares, investors may call 1-800-235-4669. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield for shares. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the shares' tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. 14 VIRGINIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 28.
YEAR ENDED OCTOBER 31, ------------------------------- 1995 1994 1993(a) - ------------------------------------------------ -------- -------- --------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------ Net investment income 0.04 0.03 0.003 - ------------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------------ Distributions from net investment income (0.04) (0.03) (0.003) - ------------------------------------------------ -------- -------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------ -------- -------- --------- -------- -------- --------- TOTAL RETURN (b) 3.56% 2.57% 0.35% - ------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------ Expenses 0.49% 0.33% 0.09%* - ------------------------------------------------ Net investment income 3.50% 2.56% 2.68%* - ------------------------------------------------ Expense waiver/reimbursement (c) 0.42% 0.37% 1.04%* - ------------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------------ Net assets, end of period (000 omitted) $22,642 $20,360 $ 7,210 - ------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from September 16, 1993 (date of initial public investment) to October 31, 1993. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) 15 VIRGINIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------------ ------- ------------ SHORT-TERM MUNICIPALS--99.3% - --------------------------------------------------------------------------- VIRGINIA--95.9% ------------------------------------------------------------ $ 1,000,000 Alexandria, VA IDA Weekly VRDNs (American Red Cross)/ (Sanwa Bank Ltd., Osaka LOC) A-1+ $ 1,000,000 ------------------------------------------------------------ 6,500,000 Alexandria, VA Redevelopment and Housing Authority Weekly VRDNs (Crystal City Apartments)/(Safeco Insurance Co. of America INS)/(Sumitomo Bank Ltd., Osaka LIQ) A-1 6,500,000 ------------------------------------------------------------ 2,200,000 Amelia County, VA IDA, (Series 1991) Weekly VRDNs (Chambers Waste System)/(Nationsbank, N.A. (Carolinas) LOC) VMIG1 2,200,000 ------------------------------------------------------------ 2,600,000 Arlington County, VA Weekly VRDNs (Ballston Public Parking)/(Citibank NA, New York LOC) A-1 2,600,000 ------------------------------------------------------------ 3,200,000 Botetourt County, VA IDA, IDRB (Series 1995) Weekly VRDNs (Emkay Holdings, L.L.C. Project)/(State Street Bank and Trust Co. LOC) VMIG1 3,200,000 ------------------------------------------------------------ 500,000 Campbell County, VA IDA, Solid Waste Disposal Facilities Revenue ACES Weekly VRDNs (Georgia-Pacific Corp.)/ (Industrial Bank of Japan Ltd., Tokyo LOC) A-1 500,000 ------------------------------------------------------------ 4,625,000 Carroll County, VA IDA, Adjustable Rate IDRB (Series 1995) Weekly VRDNs (Kentucky Derby Hosiery Co., Inc. Project)/ (Liberty National Bank & Trust Co. LOC) A-1+ 4,625,000 ------------------------------------------------------------ 1,900,000 Chesapeake, VA IDA, (Series 1986) Weekly VRDNs (Volvo Auto Receivables 1992-B)/(Union Bank of Switzerland, Zurich LOC) P-1 1,900,000 ------------------------------------------------------------ 6,000,000 Chesapeake, VA IDA, IDRB (Series 1988) Weekly VRDNs (Sumitomo Machinery Corp. of America Corp.)/(Sumitomo Bank Ltd., Osaka LOC) VMIG1 6,000,000 ------------------------------------------------------------ 3,000,000 Commonwealth of Virginia, (Series 1995), 3.85% CP, Mandatory Tender 1/16/1996 A-1+ 3,000,000 ------------------------------------------------------------
16 VIRGINIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------------ ------- ------------ SHORT-TERM MUNICIPALS--CONTINUED - --------------------------------------------------------------------------- VIRGINIA--CONTINUED ------------------------------------------------------------ $ 1,886,500 Dinwiddie County, VA IDA, IDRB (Series 1989) Weekly VRDNs (Tindall Concrete VA, Inc.)/(First Union National Bank, Charlotte, NC LOC) P-1 $ 1,886,500 ------------------------------------------------------------ 3,515,000 Dinwiddie County, VA IDA, IDRB (Series 1991) Weekly VRDNs (Maclin-Zimmer-Mcgill Tobacco Co., Inc.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) P-1 3,515,000 ------------------------------------------------------------ 1,050,000 Fairfax County, VA EDA Weekly VRDNs (William Byrd Press)/(Nationsbank of Virginia, N.A. LOC) VMIG1 1,050,000 ------------------------------------------------------------ 1,000,000 Fairfax County, VA Housing Authority Weekly VRDNs (Chase Commons Associates)/(Bankers Trust Co., New York LOC) P-1 1,000,000 ------------------------------------------------------------ 1,900,000 Fairfax County, VA IDA Weekly VRDNs (Fairfax Hospital System)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) A-1 1,900,000 ------------------------------------------------------------ 3,000,000 Fairfax County, VA IDA, (Series 1993B), 3.80% CP (Inova Health System), Mandatory Tender 1/23/1996 A-1 3,000,000 ------------------------------------------------------------ 4,000,000 Fairfax County, VA IDA, (Series 1993B), 3.80% CP (Inova Health System), Mandatory Tender 11/21/1995 A-1 4,000,000 ------------------------------------------------------------ 1,250,000 Fairfax County, VA, UT GO Refunding Bonds (Series B), 6.60% Bonds, 11/1/1996 (@101) Aaa 1,296,216 ------------------------------------------------------------ 6,100,000 Falls Church, VA IDA, (Series 1985), 4.10% TOBs (Kaiser Permanente Medical Care Program), Optional Tender 11/1/1995 A-1+ 6,100,000 ------------------------------------------------------------ 600,000 Fauquier County, VA IDA, Various Rate Demand Refunding Revenue Bonds Weekly VRDNs (Warrenton Development Co.)/ (Nationsbank of Maryland, N.A. LOC) P-1 600,000 ------------------------------------------------------------ 7,113,000 Fluvanna County, VA IDA, (Series 1986) Weekly VRDNs (Thomasville Furniture Industries)/(Union Bank of Switzerland, Zurich LOC) P-1 7,113,000 ------------------------------------------------------------ 4,500,000 Front Royal & Warren County, VA IDA, IDRB (Series 1995) Weekly VRDNs (Pen-Tab Industries, Inc. Project)/(Bank of America Illinois LOC) P-1 4,500,000 ------------------------------------------------------------
17 VIRGINIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------------ ------- ------------ SHORT-TERM MUNICIPALS--CONTINUED - --------------------------------------------------------------------------- VIRGINIA--CONTINUED ------------------------------------------------------------ $ 1,070,000 Grayson County, VA IDA, (Series 1987) Weekly VRDNs (Robertshaw Controls Company Project)/(Nationsbank of Virginia, N.A. LOC) P-1 $ 1,070,000 ------------------------------------------------------------ 4,000,000 Halifax, VA IDA, MMMs, PCR, 3.90% CP (Virginia Electric Power Co.), Mandatory Tender 12/8/1995 A-1 4,000,000 ------------------------------------------------------------ 7,500,000 Halifax, VA IDA, MMMs, PCR, 4.00% CP (Virginia Electric Power Co.), Mandatory Tender 1/12/1996 A-1 7,500,000 ------------------------------------------------------------ 2,582,000 Harrisonburg, VA Redevelopment & Housing Authority, (1989 Series) Weekly VRDNs (Potomac Hills Apartments Project)/(Nationsbank of Virginia, N.A. LOC) P-1 2,582,000 ------------------------------------------------------------ 3,745,000 Henrico County, VA IDA, IDRB (Series 1994) Weekly VRDNs (Gravure Packaging Project)/(First Union National Bank, Charlotte, NC LOC) P-1 3,745,000 ------------------------------------------------------------ 2,495,000 Norfolk, VA, 7.10% Bonds (United States Treasury PRF), 6/1/1996 (@102) Aaa 2,591,131 ------------------------------------------------------------ 4,015,000 Prince William County, VA, (Series C), 3.60% BONDs, 8/1/1996 AA 4,015,513 ------------------------------------------------------------ 400,000 Prince William County, VA, Lease Participation Certificates (Series 1995), 4.00% Bonds (MBIA Insurance Corporation INS), 12/1/1995 Aaa 400,089 ------------------------------------------------------------ 1,500,000 Pulaski County, VA IDA, (Series 1995) Weekly VRDNs (Balogh Real Estate Ltd. Partnership Mar-Bal, Inc. Project)/ (Bank One, Cleveland, N.A. LOC) P-1 1,500,000 ------------------------------------------------------------ 1,010,000 Richmond, VA IDA, Industrial Development Revenue Refunding Bonds (Series 1987-B), 4.10% TOBs (Crow-Klein-Macfarlane Project)/(First Union National Bank of Virginia LOC), Optional Tender 11/15/1995 P-1 1,010,000 ------------------------------------------------------------ 6,000,000 Richmond, VA Redevelopment & Housing Authority, (Series 1989) Weekly VRDNs (Belmont Apartment)/ (Nationsbank, N.A. (Carolinas) LOC) P-1 6,000,000 ------------------------------------------------------------
18 VIRGINIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------------ ------- ------------ SHORT-TERM MUNICIPALS--CONTINUED - --------------------------------------------------------------------------- VIRGINIA--CONTINUED ------------------------------------------------------------ $ 1,500,000 Richmond, VA Redevelopment & Housing Authority, (Series B-3) Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Westdeutsche Landesbank Girozentrale LOC) VMIG1 $ 1,500,000 ------------------------------------------------------------ 3,160,000 Richmond, VA Redevelopment & Housing Authority, (Series B-5) Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Westdeutsche Landesbank Girozentrale LOC) VMIG1 3,160,000 ------------------------------------------------------------ 2,900,000 South Hill, VA IDA, IDRB (Series 1987) Weekly VRDNs (South Hill Veneers, Inc. Project)/(Bank One, Columbus, N.A. LOC) P-1 2,900,000 ------------------------------------------------------------ 2,495,000 Tazewell County, VA IDA, (Series 1993) Weekly VRDNs (Seville Properties Bluefield)/(Huntington National Bank, Columbus, OH LOC) P-1 2,495,000 ------------------------------------------------------------ 9,000,000 Virginia Education Loan Authority, (Series 1995-A), 4.00% TOBs (Westdeutsche Landesbank Girozentrale LOC), Mandatory Tender 5/1/1996 VMIG1 9,000,000 ------------------------------------------------------------ 2,000,000 Virginia Education Loan Authority, (Series E), 5.00% Bonds, 9/1/1996 Aaa 2,018,863 ------------------------------------------------------------ 2,400,000 Virginia Peninsula Port Authority Daily VRDNs (Kinyo Virginia, Inc.)/(Industrial Bank of Japan Ltd., Tokyo LOC) A-1 2,400,000 ------------------------------------------------------------ 2,200,000 Virginia Peninsula Port Authority, Coal Terminal Revenue Refunding Bonds (Series 1987A), 3.75% CP (Dominion Terminal Associates)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/10/1996 P-1 2,200,000 ------------------------------------------------------------ 4,000,000 Virginia Peninsula Port Authority, Facility Revenue Refunding Bonds (Series 1992), 3.75% CP (CSX Corp.)/(Bank of Nova Scotia, Toronto LOC), Mandatory Tender 12/15/1995 AA- 4,000,000 ------------------------------------------------------------ 1,500,000 Virginia Peninsula Port Authority, Facility Revenue Refunding Bonds (Series 1992), 3.80% CP (CSX Corp.)/(Bank of Nova Scotia, Toronto LOC), Mandatory Tender 1/12/1996 AA- 1,500,000 ------------------------------------------------------------ 5,044,000 Virginia Peninsula Port Authority, IDRB (Series 1986) Weekly VRDNs (Eeco Project)/(Nationsbank of Virginia, N.A. LOC) P-1 5,044,000 ------------------------------------------------------------
19 VIRGINIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------------ ------- ------------ SHORT-TERM MUNICIPALS--CONTINUED - --------------------------------------------------------------------------- VIRGINIA--CONTINUED ------------------------------------------------------------ $ 1,500,000 Virginia State Housing Development Authority, (Series 1987A) Weekly VRDNs (AHC Service Center)/ (Mitsubishi Bank Ltd., Tokyo LOC) P-1 $ 1,500,000 ------------------------------------------------------------ 1,000,000 Virginia State Transportation Board, 6.70% Bonds (United States Treasury COL), 3/1/1996 Aaa 1,009,747 ------------------------------------------------------------ 1,507,000 Williamsburg, VA IDA, (Series 1988) Weekly VRDNs (Colonial Williamsburg Foundation Museum)/(Sanwa Bank Ltd., Osaka LOC) P-1 1,507,000 ------------------------------------------------------------ 1,575,000 Winchester, VA IDA, (Series 1995) Weekly VRDNs (Midwesco Filter Resources, Inc. Project)/(Harris Trust & Savings Bank, Chicago LOC) AA- 1,575,000 ------------------------------------------------------------ ------------ Total 143,709,059 ------------------------------------------------------------ ------------ PUERTO RICO--1.7% ------------------------------------------------------------ 500,000 Puerto Rico Government Development Bank Weekly VRDNs (Credit Suisse, Zurich LOC) A-1+ 500,000 ------------------------------------------------------------ 2,000,000 Puerto Rico Government Development Bank, 3.80% CP, Mandatory Tender 12/8/1995 A-1+ 2,000,000 ------------------------------------------------------------ ------------ Total 2,500,000 ------------------------------------------------------------ ------------ VIRGIN ISLANDS--1.7% ------------------------------------------------------------ 2,500,000 Virgin Islands HFA, Single Family Mortgage Revenue Refunding Bonds (1995 Series B), 4.375% TOBs (FGIC INS), Optional Tender 2/1/1996 A-1+ 2,500,000 ------------------------------------------------------------ ------------ TOTAL INVESTMENTS (AT AMORTIZED COST)(a) $148,709,059 ------------------------------------------------------------ ------------ ------------
Securities that are subject to Alternative Minimum Tax represent 52.2% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($149,724,411) at October 31, 1995. 20 VIRGINIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronyms are used throughout this portfolio: ACES --Adjustable Convertible Extendable Securities COL --Collateralized CP --Commercial Paper EDA --Economic Development Authority FGIC --Financial Guaranty Insurance Company GO --General Obligation HFA --Housing Finance Authority IDA --Industrial Development Authority IDRB --Industrial Development Revenue Bond INS --Insured LIQ --Liquidity Agreement LOC --Letter of Credit MBIA --Municipal Bond Investors Assurance MMMs --Money Market Municipals PCR --Pollution Control Revenue PLC --Public Limited Company PRF --Prerefunded TOBs --Tender Option Bonds UT --Unlimited Tax VRDNs --Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) 21 VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------ Total investments in securities, at amortized cost and value $148,709,059 - ------------------------------------------------------------------ Cash 246,460 - ------------------------------------------------------------------ Income receivable 899,894 - ------------------------------------------------------------------ Receivable for shares sold 2,000 - ------------------------------------------------------------------ Deferred expenses 26,331 - ------------------------------------------------------------------ ------------ Total assets 149,883,744 - ------------------------------------------------------------------ LIABILITIES: - ------------------------------------------------------------------ Income distribution payable $133,993 - -------------------------------------------------------- Accrued expenses 25,340 - -------------------------------------------------------- -------- Total liabilities 159,333 - ------------------------------------------------------------------ ------------ NET ASSETS for 149,724,411 shares outstanding $149,724,411 - ------------------------------------------------------------------ ------------ ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------ INSTITUTIONAL SHARES: - ------------------------------------------------------------------ $22,641,829 DIVIDED BY 22,641,829 shares outstanding $ 1.00 - ------------------------------------------------------------------ ------------ ------------ INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------ $127,082,582 DIVIDED BY 127,082,582 shares outstanding $ 1.00 - ------------------------------------------------------------------ ------------ ------------
(See Notes which are an integral part of the Financial Statements) 22 VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - -------------------------------------------------------------------- Interest $5,122,922 - -------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------------------- Investment advisory fee $ 514,947 - -------------------------------------------------------- Administrative personnel and services fee 155,000 - -------------------------------------------------------- Custodian fees 42,137 - -------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 32,992 - -------------------------------------------------------- Directors'/Trustees' fees 1,476 - -------------------------------------------------------- Auditing fees 14,657 - -------------------------------------------------------- Legal fees 1,787 - -------------------------------------------------------- Portfolio accounting fees 28,545 - -------------------------------------------------------- Shareholder services fee--Institutional Shares 59,585 - -------------------------------------------------------- Shareholder services fee--Institutional Service Shares 262,256 - -------------------------------------------------------- Share registration costs 44,278 - -------------------------------------------------------- Printing and postage 10,499 - -------------------------------------------------------- Insurance premiums 5,455 - -------------------------------------------------------- Miscellaneous 5,757 - -------------------------------------------------------- ---------- Total expenses 1,179,371 - -------------------------------------------------------- Waivers-- - --------------------------------------------- Waiver of investment advisory fee $(224,073) - --------------------------------------------- Waiver of shareholder services fee--Institutional Shares (59,585) - --------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (157,354) - --------------------------------------------- --------- Total waivers (441,012) - -------------------------------------------------------- ---------- Net expenses 738,359 - -------------------------------------------------------------------- ---------- Net investment income $4,384,563 - -------------------------------------------------------------------- ---------- ----------
(See Notes which are an integral part of the Financial Statements) 23 VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ----------------------------------- 1995 1994 ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS: - -------------------------------------------- OPERATIONS-- - -------------------------------------------- Net investment income $ 4,384,563 $ 2,874,102 - -------------------------------------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS-- - -------------------------------------------- Distributions from net investment income - -------------------------------------------- Institutional Shares (834,541) (394,677) - -------------------------------------------- Institutional Service Shares (3,550,022) (2,479,425) - -------------------------------------------- ---------------- ---------------- Change in net assets resulting from distributions to shareholders (4,384,563) (2,874,102) - -------------------------------------------- ---------------- ---------------- SHARE TRANSACTIONS-- - -------------------------------------------- Proceeds from sale of shares 1,020,240,888 1,227,739,774 - -------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,822,568 2,081,737 - -------------------------------------------- Cost of shares redeemed (993,783,278) (1,162,235,549) - -------------------------------------------- ---------------- ---------------- Change in net assets resulting from share transactions 29,280,178 67,585,962 - -------------------------------------------- ---------------- ---------------- Change in net assets 29,280,178 67,585,962 - -------------------------------------------- NET ASSETS: - -------------------------------------------- Beginning of period 120,444,233 52,858,271 - -------------------------------------------- ---------------- ---------------- End of period $ 149,724,411 $ 120,444,233 - -------------------------------------------- ---------------- ---------------- ---------------- ----------------
(See Notes which are an integral part of the Financial Statements) 24 VIRGINIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Virginia Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers two classes of shares: Institutional Shares and Institutional Service Shares. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 75.2% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured 25 VIRGINIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- by or supported (backed) by a letter of credit for any one institution or agency does not exceed 9.2% of total investments. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1995, capital paid-in aggregated $149,724,411. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, ---------------------------- INSTITUTIONAL SHARES 1995 1994 - ---------------------------------------- ------------ -------------- Shares sold 87,290,291 66,227,881 - ---------------------------------------- Shares issued to shareholders in payment of distributions declared 15,666 28,365 - ---------------------------------------- Shares redeemed (85,024,334) (53,106,542) - ---------------------------------------- ------------ -------------- Net change resulting from Institutional Share transactions 2,281,623 13,149,704 - ---------------------------------------- ------------ -------------- ------------ -------------- YEAR ENDED OCTOBER 31, ---------------------------- INSTITUTIONAL SERVICE SHARES 1995 1994 - ---------------------------------------- ------------ -------------- Shares sold 932,950,597 1,161,511,893 - ---------------------------------------- Shares issued to shareholders in payment of distributions declared 2,806,902 2,053,372 - ---------------------------------------- Shares redeemed (908,758,944) (1,109,129,007) - ---------------------------------------- ------------ -------------- Net change resulting from Institutional Service Share transactions 26,998,555 54,436,258 - ---------------------------------------- ------------ -------------- ------------ -------------- Net change resulting from Fund share transactions 29,280,178 67,585,962 - ---------------------------------------- ------------ -------------- ------------ --------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive a portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. 26 VIRGINIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net assets of each class of shares for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. For the fiscal year ended October 31, 1995, Institutional Shares fully waived its shareholder services fee. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ also maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses of $33,493 were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organizational expenses during the five year period following effective date. For the period ended October 31, 1995, the Fund paid $6,699 pursuant to this agreement. INTERFUND TRANSACTIONS--During the year ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common officers. These transactions were made at current market value pursuant to Rule 17a-7 under the Act amounting to $133,100,000 and $139,755,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 27 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Virginia Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Virginia Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights (see pages 2 and 15 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Virginia Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania, December 15, 1995 28 ADDRESSES - -------------------------------------------------------------------------------- Virginia Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 - -------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - -------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - --------------------------------------------------------------------------------
29 - -------------------------------------------------------------------------------- VIRGINIA MUNICIPAL CASH TRUST INSTITUTIONAL SERVICE SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 [FEDERATED SECURITIES CORP. LOGO] Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 CUSIP 314229824 3080501A-SS (12/95) [RECYCLED PAPER LOGO] RECYCLED PAPER - -------------------------------------------------------------------------------- VIRGINIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS The Institutional Shares of Virginia Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Virginia municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Virginia, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income and the income tax imposed by the Commonwealth of Virginia consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - -------------------------------------------------- FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 2 - -------------------------------------------------- GENERAL INFORMATION 3 - -------------------------------------------------- INVESTMENT INFORMATION 3 - -------------------------------------------------- Investment Objective 3 Investment Policies 3 Virginia Municipal Securities 6 Investment Risks 6 Non-Diversification 7 Investment Limitations 7 FUND INFORMATION 7 - -------------------------------------------------- Management of the Fund 7 Distribution of Institutional Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - -------------------------------------------------- HOW TO PURCHASE SHARES 9 - -------------------------------------------------- HOW TO REDEEM SHARES 10 - -------------------------------------------------- ACCOUNT AND SHARE INFORMATION 11 - -------------------------------------------------- TAX INFORMATION 12 - -------------------------------------------------- Federal Income Tax 12 State and Local Taxes 13 OTHER CLASSES OF SHARES 13 - -------------------------------------------------- PERFORMANCE INFORMATION 13 - -------------------------------------------------- FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES 15 - -------------------------------------------------- FINANCIAL STATEMENTS 16 - -------------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 28 - -------------------------------------------------- ADDRESSES 29 - --------------------------------------------------
I SUMMARY OF FUND EXPENSES - --------------------------------------------------------------------------------
INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................... None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)....................................................................... None Redemption Fee (as a percentage of amount redeemed, if applicable)............................... None Exchange Fee..................................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)................................................................ 0.23% 12b-1 Fee........................................................................................ None Total Other Expenses............................................................................. 0.26% Shareholder Services Fee (after waiver) (2)......................................... 0.00% Total Operating Expenses (3)............................................................. 0.49%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The maximum shareholder services fee is 0.25%. (3) The total operating expenses would have been 0.91% absent the voluntary waivers of a portion of the management fee and the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ----------------------------------------------------------------- --------- --------- --------- --------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period................................................. $5 $16 $27 $62
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 1 VIRGINIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 28.
YEAR ENDED OCTOBER 31, --------------------------------------- 1995 1994 1993(a) - ----------------------------------------------------------- ------------ ------------ ----------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------------------------- Net investment income 0.04 0.03 0.003 - ----------------------------------------------------------- LESS DISTRIBUTIONS - ----------------------------------------------------------- Distributions from net investment income (0.04) (0.03) (0.003) - ----------------------------------------------------------- ------ ------ ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------------------------- ------ ------ ----------- ------ ------ ----------- TOTAL RETURN (b) 3.56% 2.57% 0.35% - ----------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------------------------- Expenses 0.49% 0.33% 0.09%* - ----------------------------------------------------------- Net investment income 3.50% 2.56% 2.68%* - ----------------------------------------------------------- Expense waiver/reimbursement (c) 0.42% 0.37% 1.04%* - ----------------------------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------------------------- Net assets, end of period (000 omitted) $22,642 $20,360 $ 7,210 - -----------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from September 16, 1993 (date of initial public investment) to October 31, 1993. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) 2 GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Trustees have established two classes of shares known as Institutional Shares and Institutional Service Shares. This prospectus relates only to Institutional Shares of the Fund, which are designed primarily for financial institutions acting in a fiduciary capacity as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term Virginia municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Virginia taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the income tax imposed by the Commonwealth of Virginia consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Virginia municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Virginia state income tax or at least 80% of its net assets will be invested in obligations, the interest income from which is exempt from federal regular and Virginia state income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Virginia and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political 3 subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and the income tax imposed by the Commonwealth of Virginia ("Virginia Municipal Securities"). Examples of Virginia Municipal Securities include, but are not limited to: - tax and revenue anticipation notes ("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 debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Virginia Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Virginia Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. 4 CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of 5 $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Virginia Municipal Securities is subject to the federal alternative minimum tax. VIRGINIA MUNICIPAL SECURITIES Virginia Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Virginia Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Virginia Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Virginia Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Virginia Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Virginia Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Virginia Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Virginia Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Virginia Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. 6 There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of its total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other 7 expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of Institutional Shares, computed at an annual rate, to obtain certain personal services for shareholders and provide maintenance of shareholder accounts ("shareholder services"). From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The 8 schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor may pay financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide certain services to shareholders. These services may include, but are not limited to, distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of shares. Any fees paid for these services by the distributor will be reimbursed by the adviser and not the Fund. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS -------------------- ------------------------------------ .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of Institutional Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased either by wire or by check. The Fund reserves the right to reject any purchase request. 9 To make a purchase, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken by telephone. The minimum initial investment is $25,000. However, an account may be opened with a smaller amount as long as the minimum is reached within 90 days. Minimum investments will be calculated by combining all accounts maintained with the Fund. Financial institutions may impose different minimum investment requirements on their customers. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as follows: Federated Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Virginia Municipal Cash Trust-Institutional Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by mailing a check made payable to Virginia Municipal Cash Trust-Institutional Shares to: Federated Services Company, P.O. Box P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are considered received when payment by check is converted into federal funds. This is normally the next business day after the check is received. SUBACCOUNTING SERVICES. Financial institutions are encouraged to open single master accounts. A subaccounting system is available through the transfer agent to minimize internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Fund shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. State securities laws may require certain financial institutions such as depository institutions to register as dealers. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after Federated Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 p.m. (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from 10 redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered mail or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. 11 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 or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 4, 1995, HAMAC & Co., Richmond, VA, owned 7,973,156 shares 31.48% of the voting securities of the Fund's Institutional Shares, and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. 12 The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Virginia. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. VIRGINIA TAXES. Under existing Virginia laws, distributions made by the Fund will not be subject to Virginia income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest from obligations issued by or on behalf of the Commonwealth of Virginia or any political subdivision thereof; or (ii) interest from obligations issued by a territory or possession of the United States or any political subdivision thereof which federal law exempts from state income taxes. Conversely, to the extent that distributions made by the Fund are attributable to other types of obligations, such distributions will be subject to Virginia income taxes. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers another class of shares called Institutional Service Shares. Institutional Service Shares are sold at net asset value primarily to financial institutions acting in an agency capacity and are subject to a minimum initial investment of $25,000 over a 90-day period. All classes are subject to certain of the same expenses. Institutional Service Shares are distributed with no 12b-1 Plan but are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-235-4669. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield for shares. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher 13 than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the shares' tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. 14 VIRGINIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 28.
YEAR ENDED OCTOBER 31, -------------------------------- 1995 1994 1993(a) - ------------------------------------------------ --------- --------- -------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------ Net investment income 0.03 0.02 0.003 - ------------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------------ Distributions from net investment income (0.03) (0.02) (0.003) - ------------------------------------------------ --------- --------- -------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------ --------- --------- -------- --------- --------- -------- TOTAL RETURN (b) 3.46% 2.44% 0.34% - ------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------ Expenses 0.59% 0.40% 0.19%* - ------------------------------------------------ Net investment income 3.38% 2.42% 2.67%* - ------------------------------------------------ Expense waiver/reimbursement (c) 0.32% 0.37% 1.04%* - ------------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------------ Net assets, end of period (000 omitted) $127,083 $100,084 $45,648 - ------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from September 16, 1993 (date of initial public investment) to October 31, 1993. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) 15 VIRGINIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------------ ------- ------------ SHORT-TERM MUNICIPALS--99.3% - --------------------------------------------------------------------------- VIRGINIA--95.9% ------------------------------------------------------------ $ 1,000,000 Alexandria, VA IDA Weekly VRDNs (American Red Cross)/ (Sanwa Bank Ltd., Osaka LOC) A-1+ $ 1,000,000 ------------------------------------------------------------ 6,500,000 Alexandria, VA Redevelopment and Housing Authority Weekly VRDNs (Crystal City Apartments)/(Safeco Insurance Co. of America INS)/(Sumitomo Bank Ltd., Osaka LIQ) A-1 6,500,000 ------------------------------------------------------------ 2,200,000 Amelia County, VA IDA, (Series 1991) Weekly VRDNs (Chambers Waste System)/(Nationsbank, N.A. (Carolinas) LOC) VMIG1 2,200,000 ------------------------------------------------------------ 2,600,000 Arlington County, VA Weekly VRDNs (Ballston Public Parking)/(Citibank NA, New York LOC) A-1 2,600,000 ------------------------------------------------------------ 3,200,000 Botetourt County, VA IDA, IDRB (Series 1995) Weekly VRDNs (Emkay Holdings, L.L.C. Project)/(State Street Bank and Trust Co. LOC) VMIG1 3,200,000 ------------------------------------------------------------ 500,000 Campbell County, VA IDA, Solid Waste Disposal Facilities Revenue ACES Weekly VRDNs (Georgia-Pacific Corp.)/ (Industrial Bank of Japan Ltd., Tokyo LOC) A-1 500,000 ------------------------------------------------------------ 4,625,000 Carroll County, VA IDA, Adjustable Rate IDRB (Series 1995) Weekly VRDNs (Kentucky Derby Hosiery Co., Inc. Project)/ (Liberty National Bank & Trust Co. LOC) A-1+ 4,625,000 ------------------------------------------------------------ 1,900,000 Chesapeake, VA IDA, (Series 1986) Weekly VRDNs (Volvo Auto Receivables 1992-B)/(Union Bank of Switzerland, Zurich LOC) P-1 1,900,000 ------------------------------------------------------------ 6,000,000 Chesapeake, VA IDA, IDRB (Series 1988) Weekly VRDNs (Sumitomo Machinery Corp. of America Corp.)/(Sumitomo Bank Ltd., Osaka LOC) VMIG1 6,000,000 ------------------------------------------------------------ 3,000,000 Commonwealth of Virginia, (Series 1995), 3.85% CP, Mandatory Tender 1/16/1996 A-1+ 3,000,000 ------------------------------------------------------------
16 VIRGINIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------------ ------- ------------ SHORT-TERM MUNICIPALS--CONTINUED - --------------------------------------------------------------------------- VIRGINIA--CONTINUED ------------------------------------------------------------ $ 1,886,500 Dinwiddie County, VA IDA, IDRB (Series 1989) Weekly VRDNs (Tindall Concrete VA, Inc.)/(First Union National Bank, Charlotte, NC LOC) P-1 $ 1,886,500 ------------------------------------------------------------ 3,515,000 Dinwiddie County, VA IDA, IDRB (Series 1991) Weekly VRDNs (Maclin-Zimmer-Mcgill Tobacco Co., Inc.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) P-1 3,515,000 ------------------------------------------------------------ 1,050,000 Fairfax County, VA EDA Weekly VRDNs (William Byrd Press)/(Nationsbank of Virginia, N.A. LOC) VMIG1 1,050,000 ------------------------------------------------------------ 1,000,000 Fairfax County, VA Housing Authority Weekly VRDNs (Chase Commons Associates)/(Bankers Trust Co., New York LOC) P-1 1,000,000 ------------------------------------------------------------ 1,900,000 Fairfax County, VA IDA Weekly VRDNs (Fairfax Hospital System)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) A-1 1,900,000 ------------------------------------------------------------ 3,000,000 Fairfax County, VA IDA, (Series 1993B), 3.80% CP (Inova Health System), Mandatory Tender 1/23/1996 A-1 3,000,000 ------------------------------------------------------------ 4,000,000 Fairfax County, VA IDA, (Series 1993B), 3.80% CP (Inova Health System), Mandatory Tender 11/21/1995 A-1 4,000,000 ------------------------------------------------------------ 1,250,000 Fairfax County, VA, UT GO Refunding Bonds (Series B), 6.60% Bonds, 11/1/1996 (@101) Aaa 1,296,216 ------------------------------------------------------------ 6,100,000 Falls Church, VA IDA, (Series 1985), 4.10% TOBs (Kaiser Permanente Medical Care Program), Optional Tender 11/1/1995 A-1+ 6,100,000 ------------------------------------------------------------ 600,000 Fauquier County, VA IDA, Various Rate Demand Refunding Revenue Bonds Weekly VRDNs (Warrenton Development Co.)/ (Nationsbank of Maryland, N.A. LOC) P-1 600,000 ------------------------------------------------------------ 7,113,000 Fluvanna County, VA IDA, (Series 1986) Weekly VRDNs (Thomasville Furniture Industries)/(Union Bank of Switzerland, Zurich LOC) P-1 7,113,000 ------------------------------------------------------------ 4,500,000 Front Royal & Warren County, VA IDA, IDRB (Series 1995) Weekly VRDNs (Pen-Tab Industries, Inc. Project)/(Bank of America Illinois LOC) P-1 4,500,000 ------------------------------------------------------------
17 VIRGINIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------------ ------- ------------ SHORT-TERM MUNICIPALS--CONTINUED - --------------------------------------------------------------------------- VIRGINIA--CONTINUED ------------------------------------------------------------ $ 1,070,000 Grayson County, VA IDA, (Series 1987) Weekly VRDNs (Robertshaw Controls Company Project)/(Nationsbank of Virginia, N.A. LOC) P-1 $ 1,070,000 ------------------------------------------------------------ 4,000,000 Halifax, VA IDA, MMMs, PCR, 3.90% CP (Virginia Electric Power Co.), Mandatory Tender 12/8/1995 A-1 4,000,000 ------------------------------------------------------------ 7,500,000 Halifax, VA IDA, MMMs, PCR, 4.00% CP (Virginia Electric Power Co.), Mandatory Tender 1/12/1996 A-1 7,500,000 ------------------------------------------------------------ 2,582,000 Harrisonburg, VA Redevelopment & Housing Authority, (1989 Series) Weekly VRDNs (Potomac Hills Apartments Project)/(Nationsbank of Virginia, N.A. LOC) P-1 2,582,000 ------------------------------------------------------------ 3,745,000 Henrico County, VA IDA, IDRB (Series 1994) Weekly VRDNs (Gravure Packaging Project)/(First Union National Bank, Charlotte, NC LOC) P-1 3,745,000 ------------------------------------------------------------ 2,495,000 Norfolk, VA, 7.10% Bonds (United States Treasury PRF), 6/1/1996 (@102) Aaa 2,591,131 ------------------------------------------------------------ 4,015,000 Prince William County, VA, (Series C), 3.60% BONDs, 8/1/1996 AA 4,015,513 ------------------------------------------------------------ 400,000 Prince William County, VA, Lease Participation Certificates (Series 1995), 4.00% Bonds (MBIA Insurance Corporation INS), 12/1/1995 Aaa 400,089 ------------------------------------------------------------ 1,500,000 Pulaski County, VA IDA, (Series 1995) Weekly VRDNs (Balogh Real Estate Ltd. Partnership Mar-Bal, Inc. Project)/ (Bank One, Cleveland, N.A. LOC) P-1 1,500,000 ------------------------------------------------------------ 1,010,000 Richmond, VA IDA, Industrial Development Revenue Refunding Bonds (Series 1987-B), 4.10% TOBs (Crow-Klein-Macfarlane Project)/(First Union National Bank of Virginia LOC), Optional Tender 11/15/1995 P-1 1,010,000 ------------------------------------------------------------ 6,000,000 Richmond, VA Redevelopment & Housing Authority, (Series 1989) Weekly VRDNs (Belmont Apartment)/ (Nationsbank, N.A. (Carolinas) LOC) P-1 6,000,000 ------------------------------------------------------------
18 VIRGINIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------------ ------- ------------ SHORT-TERM MUNICIPALS--CONTINUED - --------------------------------------------------------------------------- VIRGINIA--CONTINUED ------------------------------------------------------------ $ 1,500,000 Richmond, VA Redevelopment & Housing Authority, (Series B-3) Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Westdeutsche Landesbank Girozentrale LOC) VMIG1 $ 1,500,000 ------------------------------------------------------------ 3,160,000 Richmond, VA Redevelopment & Housing Authority, (Series B-5) Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Westdeutsche Landesbank Girozentrale LOC) VMIG1 3,160,000 ------------------------------------------------------------ 2,900,000 South Hill, VA IDA, IDRB (Series 1987) Weekly VRDNs (South Hill Veneers, Inc. Project)/(Bank One, Columbus, N.A. LOC) P-1 2,900,000 ------------------------------------------------------------ 2,495,000 Tazewell County, VA IDA, (Series 1993) Weekly VRDNs (Seville Properties Bluefield)/(Huntington National Bank, Columbus, OH LOC) P-1 2,495,000 ------------------------------------------------------------ 9,000,000 Virginia Education Loan Authority, (Series 1995-A), 4.00% TOBs (Westdeutsche Landesbank Girozentrale LOC), Mandatory Tender 5/1/1996 VMIG1 9,000,000 ------------------------------------------------------------ 2,000,000 Virginia Education Loan Authority, (Series E), 5.00% Bonds, 9/1/1996 Aaa 2,018,863 ------------------------------------------------------------ 2,400,000 Virginia Peninsula Port Authority Daily VRDNs (Kinyo Virginia, Inc.)/(Industrial Bank of Japan Ltd., Tokyo LOC) A-1 2,400,000 ------------------------------------------------------------ 2,200,000 Virginia Peninsula Port Authority, Coal Terminal Revenue Refunding Bonds (Series 1987A), 3.75% CP (Dominion Terminal Associates)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/10/1996 P-1 2,200,000 ------------------------------------------------------------ 4,000,000 Virginia Peninsula Port Authority, Facility Revenue Refunding Bonds (Series 1992), 3.75% CP (CSX Corp.)/(Bank of Nova Scotia, Toronto LOC), Mandatory Tender 12/15/1995 AA- 4,000,000 ------------------------------------------------------------ 1,500,000 Virginia Peninsula Port Authority, Facility Revenue Refunding Bonds (Series 1992), 3.80% CP (CSX Corp.)/(Bank of Nova Scotia, Toronto LOC), Mandatory Tender 1/12/1996 AA- 1,500,000 ------------------------------------------------------------ 5,044,000 Virginia Peninsula Port Authority, IDRB (Series 1986) Weekly VRDNs (Eeco Project)/(Nationsbank of Virginia, N.A. LOC) P-1 5,044,000 ------------------------------------------------------------
19 VIRGINIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------------ ------- ------------ SHORT-TERM MUNICIPALS--CONTINUED - --------------------------------------------------------------------------- VIRGINIA--CONTINUED ------------------------------------------------------------ $ 1,500,000 Virginia State Housing Development Authority, (Series 1987A) Weekly VRDNs (AHC Service Center)/ (Mitsubishi Bank Ltd., Tokyo LOC) P-1 $ 1,500,000 ------------------------------------------------------------ 1,000,000 Virginia State Transportation Board, 6.70% Bonds (United States Treasury COL), 3/1/1996 Aaa 1,009,747 ------------------------------------------------------------ 1,507,000 Williamsburg, VA IDA, (Series 1988) Weekly VRDNs (Colonial Williamsburg Foundation Museum)/(Sanwa Bank Ltd., Osaka LOC) P-1 1,507,000 ------------------------------------------------------------ 1,575,000 Winchester, VA IDA, (Series 1995) Weekly VRDNs (Midwesco Filter Resources, Inc. Project)/(Harris Trust & Savings Bank, Chicago LOC) AA- 1,575,000 ------------------------------------------------------------ ------------ Total 143,709,059 ------------------------------------------------------------ ------------ PUERTO RICO--1.7% ------------------------------------------------------------ 500,000 Puerto Rico Government Development Bank Weekly VRDNs (Credit Suisse, Zurich LOC) A-1+ 500,000 ------------------------------------------------------------ 2,000,000 Puerto Rico Government Development Bank, 3.80% CP, Mandatory Tender 12/8/1995 A-1+ 2,000,000 ------------------------------------------------------------ ------------ Total 2,500,000 ------------------------------------------------------------ ------------ VIRGIN ISLANDS--1.7% ------------------------------------------------------------ 2,500,000 Virgin Islands HFA, Single Family Mortgage Revenue Refunding Bonds (1995 Series B), 4.375% TOBs (FGIC INS), Optional Tender 2/1/1996 A-1+ 2,500,000 ------------------------------------------------------------ ------------ TOTAL INVESTMENTS (AT AMORTIZED COST)(a) $148,709,059 ------------------------------------------------------------ ------------ ------------
Securities that are subject to Alternative Minimum Tax represent 52.2% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($149,724,411) at October 31, 1995. 20 VIRGINIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronyms are used throughout this portfolio: ACES --Adjustable Convertible Extendable Securities COL --Collateralized CP --Commercial Paper EDA --Economic Development Authority FGIC --Financial Guaranty Insurance Company GO --General Obligation HFA --Housing Finance Authority IDA --Industrial Development Authority IDRB --Industrial Development Revenue Bond INS --Insured LIQ --Liquidity Agreement LOC --Letter of Credit MBIA --Municipal Bond Investors Assurance MMMs --Money Market Municipals PCR --Pollution Control Revenue PLC --Public Limited Company PRF --Prerefunded TOBs --Tender Option Bonds UT --Unlimited Tax VRDNs --Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) 21 VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------ Total investments in securities, at amortized cost and value $148,709,059 - ------------------------------------------------------------------ Cash 246,460 - ------------------------------------------------------------------ Income receivable 899,894 - ------------------------------------------------------------------ Receivable for shares sold 2,000 - ------------------------------------------------------------------ Deferred expenses 26,331 - ------------------------------------------------------------------ ------------ Total assets 149,883,744 - ------------------------------------------------------------------ LIABILITIES: - ------------------------------------------------------------------ Income distribution payable $133,993 - -------------------------------------------------------- Accrued expenses 25,340 - -------------------------------------------------------- -------- Total liabilities 159,333 - ------------------------------------------------------------------ ------------ NET ASSETS for 149,724,411 shares outstanding $149,724,411 - ------------------------------------------------------------------ ------------ ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------ INSTITUTIONAL SHARES: - ------------------------------------------------------------------ $22,641,829 DIVIDED BY 22,641,829 shares outstanding $ 1.00 - ------------------------------------------------------------------ ------------ ------------ INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------ $127,082,582 DIVIDED BY 127,082,582 shares outstanding $ 1.00 - ------------------------------------------------------------------ ------------ ------------
(See Notes which are an integral part of the Financial Statements) 22 VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - -------------------------------------------------------------------- Interest $5,122,922 - -------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------------------- Investment advisory fee $ 514,947 - -------------------------------------------------------- Administrative personnel and services fee 155,000 - -------------------------------------------------------- Custodian fees 42,137 - -------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 32,992 - -------------------------------------------------------- Directors'/Trustees' fees 1,476 - -------------------------------------------------------- Auditing fees 14,657 - -------------------------------------------------------- Legal fees 1,787 - -------------------------------------------------------- Portfolio accounting fees 28,545 - -------------------------------------------------------- Shareholder services fee--Institutional Shares 59,585 - -------------------------------------------------------- Shareholder services fee--Institutional Service Shares 262,256 - -------------------------------------------------------- Share registration costs 44,278 - -------------------------------------------------------- Printing and postage 10,499 - -------------------------------------------------------- Insurance premiums 5,455 - -------------------------------------------------------- Miscellaneous 5,757 - -------------------------------------------------------- ---------- Total expenses 1,179,371 - -------------------------------------------------------- Waivers-- - --------------------------------------------- Waiver of investment advisory fee $(224,073) - --------------------------------------------- Waiver of shareholder services fee--Institutional Shares (59,585) - --------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (157,354) - --------------------------------------------- --------- Total waivers (441,012) - -------------------------------------------------------- ---------- Net expenses 738,359 - -------------------------------------------------------------------- ---------- Net investment income $4,384,563 - -------------------------------------------------------------------- ---------- ----------
(See Notes which are an integral part of the Financial Statements) 23 VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ----------------------------------- 1995 1994 ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS: - -------------------------------------------- OPERATIONS-- - -------------------------------------------- Net investment income $ 4,384,563 $ 2,874,102 - -------------------------------------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS-- - -------------------------------------------- Distributions from net investment income - -------------------------------------------- Institutional Shares (834,541) (394,677) - -------------------------------------------- Institutional Service Shares (3,550,022) (2,479,425) - -------------------------------------------- ---------------- ---------------- Change in net assets resulting from distributions to shareholders (4,384,563) (2,874,102) - -------------------------------------------- ---------------- ---------------- SHARE TRANSACTIONS-- - -------------------------------------------- Proceeds from sale of shares 1,020,240,888 1,227,739,774 - -------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,822,568 2,081,737 - -------------------------------------------- Cost of shares redeemed (993,783,278) (1,162,235,549) - -------------------------------------------- ---------------- ---------------- Change in net assets resulting from share transactions 29,280,178 67,585,962 - -------------------------------------------- ---------------- ---------------- Change in net assets 29,280,178 67,585,962 - -------------------------------------------- NET ASSETS: - -------------------------------------------- Beginning of period 120,444,233 52,858,271 - -------------------------------------------- ---------------- ---------------- End of period $ 149,724,411 $ 120,444,233 - -------------------------------------------- ---------------- ---------------- ---------------- ----------------
(See Notes which are an integral part of the Financial Statements) 24 VIRGINIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Virginia Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers two classes of shares: Institutional Shares and Institutional Service Shares. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 75.2% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured 25 VIRGINIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- by or supported (backed) by a letter of credit for any one institution or agency does not exceed 9.2% of total investments. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1995, capital paid-in aggregated $149,724,411. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, ---------------------------- INSTITUTIONAL SHARES 1995 1994 - ---------------------------------------- ------------ -------------- Shares sold 87,290,291 66,227,881 - ---------------------------------------- Shares issued to shareholders in payment of distributions declared 15,666 28,365 - ---------------------------------------- Shares redeemed (85,024,334) (53,106,542) - ---------------------------------------- ------------ -------------- Net change resulting from Institutional Share transactions 2,281,623 13,149,704 - ---------------------------------------- ------------ -------------- ------------ -------------- YEAR ENDED OCTOBER 31, ---------------------------- INSTITUTIONAL SERVICE SHARES 1995 1994 - ---------------------------------------- ------------ -------------- Shares sold 932,950,597 1,161,511,893 - ---------------------------------------- Shares issued to shareholders in payment of distributions declared 2,806,902 2,053,372 - ---------------------------------------- Shares redeemed (908,758,944) (1,109,129,007) - ---------------------------------------- ------------ -------------- Net change resulting from Institutional Service Share transactions 26,998,555 54,436,258 - ---------------------------------------- ------------ -------------- ------------ -------------- Net change resulting from Fund share transactions 29,280,178 67,585,962 - ---------------------------------------- ------------ -------------- ------------ --------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive a portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. 26 VIRGINIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net assets of each class of shares for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. For the fiscal year ended October 31, 1995, Institutional Shares fully waived its shareholder services fee. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ also maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses of $33,493 were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organizational expenses during the five year period following effective date. For the period ended October 31, 1995, the Fund paid $6,699 pursuant to this agreement. INTERFUND TRANSACTIONS--During the year ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common officers. These transactions were made at current market value pursuant to Rule 17a-7 under the Act amounting to $133,100,000 and $139,755,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 27 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Virginia Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Virginia Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights (see pages 2 and 15 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Virginia Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania, December 15, 1995 28 ADDRESSES - -------------------------------------------------------------------------------- Virginia Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 - -------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - -------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - --------------------------------------------------------------------------------
29 - -------------------------------------------------------------------------------- VIRGINIA MUNICIPAL CASH TRUST INSTITUTIONAL SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995
[FEDERATED SECURITIES CORP. LOGO] Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Cusip 314229816 3080501A-IS (12/95) [RECYCLED PAPER LOGO] RECYCLED PAPER VIRGINIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES INSTITUTIONAL SERVICE SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectuses of Virginia Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal Trust ( the "Trust") dated December 31, 1995. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-235-4669. FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 Statement dated December 31, 1995. INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued And Delayed Delivery Transactions 1 Repurchase Agreements 2 Reverse Repurchase Agreements 2 Credit Enhancement 2 VIRGINIA INVESTMENT RISKS 2 INVESTMENT LIMITATIONS 3 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 The Funds 9 Share Ownership 9 Trustees Compensation 10 Trustee Liability 10 INVESTMENT ADVISORY SERVICES 11 Investment Adviser 11 Advisory Fees 11 BROKERAGE TRANSACTIONS 11 OTHER SERVICES 12 Fund Administration 12 Custodian and Portfolio Recordkeeper 12 Transfer Agent 12 Independent Public Accountants 12 SHAREHOLDER SERVICES AGREEMENT 12 DETERMINING NET ASSET VALUE 12 REDEMPTION IN KIND 13 MASSACHUSETTS PARTNERSHIP LAW 13 THE FUND'S TAX STATUS 13 PERFORMANCE INFORMATION 13 Yield 13 Effective Yield 13 Tax-Equivalent Yield 14 Tax-Equivalency Table 14 Total Return 14 Performance Comparisons 15 ABOUT FEDERATED INVESTORS 15 Mutual Fund Market 15 Institutional Clients 15 Trust Organizations 16 Broker/Dealers and Bank Broker/Dealer Subsidiaries 16 APPENDIX 17 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security, the issuer of any demand feature applicable to the security, or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing participation interests having a seven day demand feature, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Board of Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of non-appropriation"); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1, or 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 rating categories. See "Regulatory Compliance." WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated on the Fund`s records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, brokers/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument in return for a percentage of the instrument's market value in cash and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but does not ensure this result. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are: segregated on the Fund's records at the trade date; marked to market daily; and maintained until the transaction is settled. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the "credit enhancer"), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. VIRGINIA INVESTMENT RISKS The Commonwealth of Virginia's credit strength is derived from a diversified economy, above median wealth levels, relatively low unemployment rates, conservative financial management, and a low debt burden. The Commonwealth benefits from its proximity to the nations capital and its employment base remains substantially tied to government and defense-related industries (25% of the Commonwealth's earnings are derived from government vs. a 16% average for the U.S.). Although defense cutbacks and base closings have left Virginia relatively unscathed in recent years, the potential for future closings and cutbacks remains alive; consequently, Virginia's legislators have been budgeting conservative growth in the future and have implemented spending restraints. Additionally, the Commonwealth has recently implemented policies that substantially lengthen prison sentences, and these changes will necessitate building a large number of correctional facilities in the next few years. Consequently, the need for financial discipline remains. To counter the contracting defense/government related declines, the Commonwealth is actively seeking economic diversification, focusing particularly on high technology, trade, and tourism. These efforts have met with recent success: Motorola and an IBM/Toshiba joint venture have committed to build large factories in Virginia which together are expected to create over 6,000 new jobs. Virginia remains a conservative debt issuer and maintains debt levels that are low in relation to its substantial resources. The Commonwealth actively manages its debt position and continually demonstrates its ability and willingness to adjust financial planning and budgeting to preserve financial balance. In 1991, the Commonwealth established a Debt Capacity Advisory Committee which annually estimates the amount of tax-supported debt that the Commonwealth can prudently authorize, issue, and support. The Commonwealth and the Committee have decided that the ratio of debt service to revenues should be maintained below 5%. Such conservative policies have had the effect of turning a modest deficit in 1992 to a modest surplus in both 1993 and 1994. Similar results are expected in fiscal year 1995. The Fund's concentration in securities issued by the Commonwealth and its political subdivisions provide a greater level of risk than a fund which is diversified across a number of states and municipal entities. The ability of the Commonwealth or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the Commonwealth; and the underlying fiscal condition of the Commonwealth, its counties, and its municipalities. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as may be necessary for the clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one- third of the value of its net assets, including the amounts borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of its total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may acquire publicly or nonpublicly issued Virginia municipal securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies, limitations and its Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate or real estate limited partnerships, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above limitations cannot be changed without shareholder approval. The following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its total assets in securities subject to restrictions on resale under federal securities law. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers (including companies responsible for paying principal and interest on industrial development bonds) which have records of less than three years of continuous operations, including the operation of any predecessor. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF THE TRUST The Fund will not purchase or retain the securities of any issuer if the Officers and Trustees of the Trust or its investment adviser, owning individually more than .50 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. INVESTING IN MINERALS The Fund will not purchase or sell interests in oil, gas, or other mineral exploration or development programs or leases, although it may purchase the securities of issuers which invest in or sponsor such programs. For purposes of the above limitations, the Fund considers 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 to be "cash items." Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments, as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its ability to participate in volume transactions will be to the benefit of the Fund. FEDERATED MUNICIPAL TRUST MANAGEMENT OFFICERS AND TRUSTEES ARE LISTED WITH THEIR ADDRESSES, BIRTHDATES, PRESENT POSITIONS WITH FEDERATED MUNICIPAL TRUST, AND PRINCIPAL OCCUPATIONS. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President of the Trust . Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds; formerly, Senior Partner, Ernst & Young LLP. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; President, Northgate Village Development Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Director, Trustee, or Managing General Partner of the Funds; formerly, President, Naples Property Management, Inc. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee, or Managing General Partner of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine and Member, Board of Trustees, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director, Trustee, or Managing General Partner of the Funds. Edward L. Flaherty, Jr.@ Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director, Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson * Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. and Federated Administrative Services. Peter E. Madden Seacliff 562 Bellevue Avenue Newport, RI Birthdate: March 16, 1942 Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, Trustee, or Managing General Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation. Gregor F. Meyer Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General Partner of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director, Trustee or Managing General Partner of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics and Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; founding Chairman, National Advisory Council for Environmental Policy and Technology and Federal Emergency Management Advisory Board. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/marketing consultant; Conference Coordinator, Non-profit entities; Director, Trustee, or Managing General Partner of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative Services, Federated Services Company, and Federated Shareholder Services; 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 of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. David M. Taylor Federated Investors Tower Pittsburgh, PA Birthdate: January 13, 1947 Treasurer Senior Vice President, Controller, and Trustee, Federated Investors; Controller, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., and Passport Research, Ltd.; Senior Vice President, Federated Shareholder Services; Vice President, Federated Administrative Services; Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President and Secretary Executive Vice President, Secretary, General Counsel, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds. * This Trustee is deemed to be an "interested person" as defined in the Investment Company Act of 1940, as amended. @ Member of the 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 As used in the table above, "The Funds" and "Funds" mean the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; 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; 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 U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free Instruments Trust; Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The Virtus Funds; World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees own less than 1% of the Trust`s outstanding shares. As of December 4, 1995, the following shareholder(s) of record owned 5% or more of the outstanding Institutional Shares of the Fund: Firstblue & Company, Bluefield, West Virginia, owned approximately 1,795,852 shares (7.09%); VATCO, Richland, Virginia, owned approximately 3,960,284 shares (15.64%); Nabaf & Company, Fredericksburg, Virginia, owned approximately 2,036,578 shares (8.04%); Planta & Co., Staunton, Virginia, owned approximately 1,538,550 shares (6.07%); Hamac & Co., Richmond, Virginia, owned approximately 7,973,155 shares (31.48%); Comfort & Co., Hampton, Virginia, owned approximately 3,915,657 shares (15.46%); and Chesnat, Kilmarnock, Virginia, owned approximately 1,363,036 shares(5.89%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID CORPORATION CORPORATION*# FROM FUND COMPLEX + John F. Donahue, $0 $0 for the Fund and Chairman and Director 68 other investment companies in the Fund Complex Thomas G. Bigley,$2,458 $20,688 for the Fund and Director 49 other investment companies in the Fund Complex John T. Conroy, $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex William J. Copeland, $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex James E. Dowd, $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex Lawrence D. Ellis, M.D., $3,266 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex Edward L. Flaherty, Jr., $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex Peter E. Madden, $2,757 $90,563 for the Fund and Director 64 other investment companies in the Fund Complex Gregor F. Meyer, $3,166 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex John E. Murray, Jr., $1,762 $0 for the Fund and Director 64 other investment companies in the Fund Complex Wesley W. Posvar,$3,166 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex Marjorie P. Smuts, $3,166 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1995. #The aggregate compensation is provided for the Trust which is comprised of 15 portfolios. +The information is provided for the last calendar year. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1995 and 1994, the adviser earned $514,947 and $470,783, respectively, of which $224,073 and $435,418, respectively, was voluntarily waived. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this 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 fees. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Board of Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Trust and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. For the fiscal years ended October 31, 1995 and 1994, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc., also a subsidiary of Federated Investors, served as the Fund's Administrator. (For purposes of this Statement of Additional Information, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the "Administrators".) For the fiscal year ended October 31, 1995, the Administrators collectively earned $155,000. For the fiscal year ended October 31, 1994, Federated Administrative Services, Inc. earned $145,109. Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, holds approximately 20% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. CUSTODIAN AND PORTFOLIO RECORDKEEPER State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. TRANSFER AGENT As transfer agent, Federated Services Company maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES AGREEMENT This arrangement permits the payment of fees to Federated Shareholder Services and financial institutions to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balance; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Plan, the Trustees expect that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal period ended October 31, 1995, the Fund paid shareholder service fees in the amount of $59,585 and $262,256, respectively, on behalf of Institutional Shares and Institutional Service Shares, respectively, of which $59,585 and $157,354, respectively, was voluntarily waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The Fund calculates its yield based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. For the seven-day period ended October 31, 1995, the yields for Institutional Shares and Institutional Service Shares were 3.52% and 3.42%, respectively. EFFECTIVE YIELD The Fund calculates its effective yield by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended October 31, 1995, the effective yields for Institutional Shares and Institutional Service Shares were 3.58% and 3.48%, respectively. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal rate for individuals) and assuming that income is 100% exempt. For the seven-day period ended October 31, 1995 , the tax-equivalent yields for Institutional Shares and Institutional Service Shares were 6.44% and 6.26%, respectively. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a "tax-free" investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1995 STATE OF VIRGINIA COMBINED FEDERAL AND STATE INCOME TAX BRACKET: 20.75% 33.75% 36.75% 41.75% 45.35% JOINT $1- $39,001- $94,251- $143,601- OVER RETURN 39,000 94,250 143,600 256,000 $256,500 SINGLE $1- $23,351- $56,551- $117,951- OVER RETURN 23,350 56,550 117,950 256,500 $256,500 TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT 3.50% 4.42% 5.28% 5.53% 6.01% 6.40% 4.00% 5.05% 6.04% 6.32% 6.87% 7.32% 4.50% 5.68% 6.79% 7.11% 7.73% 8.23% 5.00% 6.31% 7.55% 7.91% 8.58% 9.15% 5.50% 6.94% 8.30% 8.70% 9.44% 10.06% 6.00% 7.57% 9.06% 9.49% 10.30% 10.98% 6.50% 8.20% 9.81% 10.28% 11.16% 11.89% 7.00% 8.83% 10.57% 11.07% 12.02% 12.81% 7.50% 9.46% 11.32% 11.86% 12.88% 13.72% 8.00% 10.09% 12.08% 12.65% 13.73% 14.64% NOTE: THE MAXIMUM MARGINAL TAX RATE FOR EACH BRACKET WAS USED IN CALCULATING THE TAXABLE YIELD EQUIVALENT. FURTHERMORE, ADDITIONAL STATE AND LOCAL TAXES PAID ON COMPARABLE TAXABLE INVESTMENTS WERE NOT USED TO INCREASE FEDERAL DEDUCTIONS. IF YOU ITEMIZE DEDUCTIONS, YOUR TAXABLE YIELD EQUIVALENT WILL BE LOWER. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. For the one-year period ended October 31, 1995, and for the period from September 16, 1993 (date of initial public investment) through October 31, 1995, the average annual total returns were 3.56% and 3.05%, respectively, for Institutional Shares, and were 3.46% and 2.93%, respectively, for Institutional Service Shares. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: O LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. o MONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1994, Federated Investors managed more than $31 billion in assets across approximately 43 money market funds, including 17 government, 8 prime and 18 municipal with assets approximating $17 billion, $7.4 billion and $6.6 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors's equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors's domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors's international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $2 trillion to the more than 5,500 funds available.* Federated Investors Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated Investors funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated Investors mutual funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms-- supported by more wholesalers than any other mutual fund distributor. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity concerns and market access risks unique to notes. SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus sign (+) designation. SP-2 Satisfactory capacity to pay principal and interest. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a variable rate demand feature. The first rating (long-term rating) addresses the likelihood of repayment of principal and interest when due, and the second rating (short-term rating) describes the demand characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. LONG-TERM DEBT RATINGS AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rate "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATINGS Moody's Investor Service, Inc. (Moody's) short-term ratings are designated Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG ratings is to provide investors with a simple system by which the relative investment qualities of short-term obligations may be evaluated. MIG1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad based access to the market for refinancing. MIG2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. In this case, two ratings are usually assigned, (for example, AAA/VMIG-1); the first representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the second representing an evaluation of the degree of risk associated with the demand feature. The VMIG rating can be assigned a 1 or 2 designation using the same definitions described above for the MIG rating. COMMERCIAL PAPER (CP) RATINGS P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well established industries, high rates of return on funds employed, conservative capitalization structure with moderate reliance on debt and ample asset protection, broad margins in earning coverage of fixed financial charges and high internal cash generation, well-established access to a range of financial markets and assured sources of alternate liquidity P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. LONG-TERM DEBT RATINGS AAA Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes is can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long- term risks appear somewhat larger than in AAA securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. NR Indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P or Moody's with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated A-1 or P-1. NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated "AAA" by S&P or "AAA" by Moody's. NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated "AA" by S&P or "AA" by Moody's. NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated "A" by S&P or Moody's. 314229824 314229816 - -------------------------------------------------------------------------------- ALABAMA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) PROSPECTUS The shares of Alabama Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Alabama municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Alabama, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and the income tax imposed by the State of Alabama consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - -------------------------------------------------- FINANCIAL HIGHLIGHTS 2 - -------------------------------------------------- GENERAL INFORMATION 3 - -------------------------------------------------- INVESTMENT INFORMATION 3 - -------------------------------------------------- Investment Objective 3 Investment Policies 3 Alabama Municipal Securities 6 Investment Risks 6 Non-Diversification 7 Investment Limitations 7 FUND INFORMATION 7 - -------------------------------------------------- Management of the Fund 7 Distribution of Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - -------------------------------------------------- HOW TO PURCHASE SHARES 9 - -------------------------------------------------- Special Purchase Features 10 HOW TO REDEEM SHARES 10 - -------------------------------------------------- Special Redemption Features 12 ACCOUNT AND SHARE INFORMATION 12 - -------------------------------------------------- TAX INFORMATION 13 - -------------------------------------------------- Federal Income Tax 13 State and Local Taxes 13 PERFORMANCE INFORMATION 14 - -------------------------------------------------- FINANCIAL STATEMENTS 15 - -------------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 29 - -------------------------------------------------- ADDRESSES 30 - --------------------------------------------------
I SUMMARY OF FUND EXPENSES - --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................... None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)....................................................................... None Redemption Fee (as a percentage of amount redeemed, if applicable)............................... None Exchange Fee..................................................................................... None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)................................................................ 0.13% 12b-1 Fee........................................................................................ None Total Other Expenses............................................................................. 0.46% Shareholder Services Fee (after waiver) (2)......................................... 0.18% Total Operating Expenses (3)............................................................. 0.59%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The maximum shareholder services fee is 0.25%. (3) The total operating expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1996. The total operating expenses were 0.48% for the fiscal year ended October 31, 1995 and would have been 0.92% absent the voluntary waivers of a portion of the management fee and a portion of the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ----------------------------------------------------------------- --------- --------- --------- --------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period................................................. $6 $19 $33 $74
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 1 ALABAMA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 29.
YEAR ENDED OCTOBER 31, --------------------------- 1995 1994(a) ------------ ------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 - -------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------------------- Net investment income 0.04 0.02 - -------------------------------------------------- LESS DISTRIBUTIONS - -------------------------------------------------- Distributions from net investment income (0.04) (0.02) - -------------------------------------------------- ------------ ------------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 - -------------------------------------------------- ------------ ------------ ------------ ------------ TOTAL RETURN (b) 3.66% 2.31% - -------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------------------- Expenses 0.48% 0.36%* - -------------------------------------------------- Net investment income 3.59% 2.67%* - -------------------------------------------------- Expense waiver/reimbursement (c) 0.44% 0.62%* - -------------------------------------------------- SUPPLEMENTAL DATA - -------------------------------------------------- Net assets, end of period (000 omitted) $209,490 $142,804 - --------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from December 3, 1993 (date of initial public investment) to October 31, 1994. For the period from November 29, 1993 (start of business) to December 3, 1993 the Fund had no investment activity. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) 2 GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The Fund is designed for financial institutions acting in an agency or fiduciary capacity as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term Alabama municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Alabama taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the income tax imposed by the State of Alabama consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Alabama municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Alabama state income tax or so that at least 80% of its net assets is invested in obligations, the interest income from which is exempt from federal regular and Alabama state income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Alabama and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of 3 qualified legal counsel, exempt from federal regular income tax and Alabama income tax ("Alabama Municipal Securities"). Examples of Alabama Municipal Securities include, but are not limited to: - tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; - bond anticipation notes ("BANs") that are intended to be refinanced through a later issuance of longer-term bonds; - municipal commercial paper and other short-term notes; - variable rate demand notes; - municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and - participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Alabama Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Alabama Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party 4 providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the 5 organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Alabama Municipal Securities is subject to the federal alternative minimum tax. ALABAMA MUNICIPAL SECURITIES Alabama Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Alabama Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Alabama Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Alabama Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Alabama Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Alabama Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Alabama Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Alabama Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Alabama Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of 6 any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its net assets and pledge assets not exceeding 15% of the value of its total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. 7 ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of shares, computed at an annual rate, to obtain certain personal services for shareholders and provide the maintenance of shareholder accounts ("shareholder services"). From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon 8 which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor may pay financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide certain services to shareholders. These services may include, but are not limited to, distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of shares. Any fees paid for these services by the distributor will be reimbursed by the adviser and not the Fund. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS -------------------- ------------------------------------ .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of its shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting total liabilities from total assets and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more 9 within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Alabama Municipal Cash Trust; Fund Number (this number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to Alabama Municipal Cash Trust. Please include an account number on the check. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined 10 after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor 11 institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the checkwriting program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio, only shares of that portfolio are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only 12 for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Alabama. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. ALABAMA TAXES. Under existing Alabama laws, distributions made by the Fund will be not be subject to Alabama personal income taxes to the extent that such distributions are attributable to interest earned on obligations that would be exempt from Alabama personal income taxes if held directly by shareholders (such as obligations of Alabama or its political subdivisions, of the United States or of certain territories or possessions of the United States). Conversely, to the extent that distributions 13 made by the Fund are derived from other types of obligations, such distributions will be subject to Alabama personal income taxes. Shareholders may exclude from the share value of the Fund, for purpose of the Alabama personal property tax, that portion of the total share value which is attributable to the value of obligations of Alabama or its political subdivisions, of the United States or of certain territories or possessions of the United States. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. 14 ALABAMA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--99.2% - ----------------------------------------------------------------- ALABAMA--95.9% -------------------------------------------------- $ 5,400,000 Alabama HFA, SFM Revenue Bonds/Collateralized Home Mortgage Revenue Bond Program (1995 Series C) Weekly VRDNs (Bayerische Landesbank Girozentrale GIC) Aaa $ 5,400,000 -------------------------------------------------- 865,000 Alabama Industrial Access Road and Bridge Corp., Capital Improvement Bonds (Series 1995), 3.70%, 6/1/1996 A-1 865,000 -------------------------------------------------- 3,000,000 Alabama State IDA Weekly VRDNs (Columbus Mills Inc. Project)/(Trust Company Bank, Atlanta LOC) P-1 3,000,000 -------------------------------------------------- 6,750,000 Alabama State IDA Weekly VRDNs (Pine City Fiber Co.)/ (Barclays Bank PLC, London LOC) VMIG1 6,750,000 -------------------------------------------------- 3,985,000 Alabama State IDA, IDRB (Series 1994) Weekly VRDNs (Decatur Aluminum Corp.)/(Star Bank, NA, Cincinnati LOC) P-1 3,985,000 -------------------------------------------------- 1,800,000 Alabama State IDA, IDRB Weekly VRDNs (Monarch Tile, Inc. Project)/(Nationsbank of Texas, N.A. LOC) P-1 1,800,000 -------------------------------------------------- 4,200,000 Alabama State IDA, Revenue Bonds Weekly VRDNs (Southern Bag Corporation, Ltd.)/(SouthTrust Bank of Alabama, Birmingham LOC) P-1 4,200,000 -------------------------------------------------- 3,350,000 Alabama State IDA, Var/Fixed Rate Industrial Revenue Bonds Weekly VRDNs (Kappler USA, Inc. Project)/(National Bank of Canada, Montreal LOC) P-1 3,350,000 -------------------------------------------------- 2,485,000 Alabama State Public School & College Authority, 6.50% (United States Treasury PRF), 11/1/1995 (@101.5) Aaa 2,522,275 -------------------------------------------------- 1,000,000 Alabama State Public School & College Authority, 6.70% (United States Treasury PRF), 11/1/1995 (@101.5) Aaa 1,015,000 -------------------------------------------------- 500,000 Alabama State Public School & College Authority, 6.75% (United States Treasury PRF), 11/1/1995 (@101.5) Aaa 507,500 -------------------------------------------------- 1,000,000 Alabama State Public School & College Authority, 6.75% (United States Treasury PRF), 11/1/1995 (@101.5) Aaa 1,015,000 --------------------------------------------------
15 ALABAMA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------- ALABAMA--CONTINUED -------------------------------------------------- $ 620,000 Alabama State, Corrections Institution Finance Authority Revenue Bonds (Series B), 3.80% (MBIA Insurance Corporation INS), 4/1/1996 Aaa $ 620,000 -------------------------------------------------- 4,000,000 Alabama State, UT GO Refunding Bonds, 5.35%, 9/1/1996 AA 4,047,035 -------------------------------------------------- 3,650,000 Arab, AL IDB, (Series 1989) Weekly VRDNs (SCI Manufacturing, Inc.)/(Bank of Tokyo Ltd., Tokyo LOC) A-1 3,650,000 -------------------------------------------------- 1,100,000 Arab, AL IDB, Revenue Refunding Bonds (Series 1989) Weekly VRDNs (SCI Manufacturing, Inc.)/(Bank of Tokyo Ltd., Tokyo LOC) A-1 1,100,000 -------------------------------------------------- 2,000,000 Birmingham, AL IDA Weekly VRDNs (Altec Industries, Inc.)/(Wachovia Bank of Georgia NA, Atlanta LOC) P-1 2,000,000 -------------------------------------------------- 1,810,000 Birmingham, AL IDA Weekly VRDNs (Glasforms, Inc.)/(First Alabama Bank, Birmingham LOC) P-1 1,810,000 -------------------------------------------------- 3,600,000 Birmingham, AL Medical Clinic Board Daily VRDNs (University of Alabama Health System)/(Morgan Guaranty Trust Co., New York LOC) A-1+ 3,600,000 -------------------------------------------------- 6,000,000 Birmingham, AL, GO (Series 1995-A), 5.625% BANs, 1/5/1996 NR(2) 6,002,212 -------------------------------------------------- 1,880,000 Calhoun County, AL Economic Development Council Weekly VRDNs (Food Ingredients Tech. Co.)/(Nationsbank, N.A. (Carolinas) LOC) P-1 1,880,000 -------------------------------------------------- 4,310,000 Chatom, AL, (National Rural Utilities Series 1984M), 3.80% TOBs (Alabama Electric Co-op, Inc.)/(National Rural Utilities Cooperative Finance Corp. GTD), Optional Tender 2/15/1996 A-1 4,310,000 -------------------------------------------------- 4,000,000 Chatom, AL, IDB PCR, 3.85% CP (Alabama Electric Co-op, Inc.)/(National Rural Utilities Cooperative Finance Corp. GTD), Mandatory Tender 1/12/1996 AA- 4,000,000 -------------------------------------------------- 3,500,000 Cherokee, AL IDB, IDR Refunding Bonds (Series 1993) Weekly VRDNs (BOC Group, Inc.)/(Wachovia Bank of Georgia NA, Atlanta LOC) Aa2 3,500,000 --------------------------------------------------
16 ALABAMA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------- ALABAMA--CONTINUED -------------------------------------------------- $ 3,000,000 Decatur, AL IDB, Revenue Refunding Bonds (Series 1993) Weekly VRDNs (Allied-Signal, Inc.) A-1 $ 3,000,000 -------------------------------------------------- 6,550,000 Eutaw, AL IDB Weekly VRDNs (Mississippi Power Co.)/ (Mississippi Power Co. GTD) VMIG1 6,550,000 -------------------------------------------------- 1,730,000 Fort Payne, AL IDB, IDRB Weekly VRDNs (Ovalstrapping, Inc.)/(U.S. Bank of Washington NA LOC) P-1 1,730,000 -------------------------------------------------- 2,495,000 Homewood, AL IDA Weekly VRDNs (Mountain Brook Inn (Homewood AL))/(SouthTrust Bank of Alabama, Birmingham LOC) P-1 2,495,000 -------------------------------------------------- 4,315,000 Hoover, AL IDA Weekly VRDNs (Bud's Best Cookies, Inc.)/ (SouthTrust Bank of Alabama, Birmingham LOC) P-1 4,315,000 -------------------------------------------------- 7,500,000 Huntsville, AL Health Care Authority/Health Care Facilities, (Series 1994A) Weekly VRDNs (MBIA Insurance Corporation INS)/(Amsouth Bank N.A., Birmingham LIQ) A-1 7,500,000 -------------------------------------------------- 300,000 Huntsville, AL IDA Weekly VRDNs (Parkway Project (Huntsville, Al))/(First Alabama Bank, Birmingham LOC) A-1+ 300,000 -------------------------------------------------- 6,870,000 Huntsville, AL, G.O. Warrants (Series 1995-A), 5.25%, 2/1/1996 AA 6,895,726 -------------------------------------------------- 1,015,000 Huntsville, AL, G.O. Warrants (Series 1995-B), 5.00%, 2/1/1996 AA 1,018,173 -------------------------------------------------- 850,000 I.D.B. Sylacuaga, AL Monthly VRDNs (SouthTrust Bank of Alabama, Birmingham LOC) P-1 850,000 -------------------------------------------------- 1,715,000 Ider, AL IDB, Industrial Development Bonds Weekly VRDNs (Galbreath, Inc. Proj.)/(National Bank of Canada, Montreal LOC) P-1 1,715,000 -------------------------------------------------- 3,681,000 Irondale, AL IDB, Variable Fixed Rate Revenue Bonds (Series 1989) Weekly VRDNs (Collateral Mortgage, Ltd.)/ (SouthTrust Bank of Alabama, Birmingham LOC) P-1 3,681,000 -------------------------------------------------- 3,900,000 Limestone County, AL Water Authority, Water Revenue Bonds, 7.875% (United States Treasury PRF), 5/15/1996 (@103) Aaa 4,098,291 --------------------------------------------------
17 ALABAMA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------- ALABAMA--CONTINUED -------------------------------------------------- $ 3,900,000 Madison, AL IDA, (Series A) Weekly VRDNs (Executive Inn)/(Amsouth Bank N.A., Birmingham LOC) A-1 $ 3,900,000 -------------------------------------------------- 1,425,000 Marshall County, AL, Special Obligation School Refunding Warrant (Series 1994) Weekly VRDNs (Marshall County, AL Board of Education)/(First Alabama Bank, Birmingham LOC) A-1+ 1,425,000 -------------------------------------------------- 2,700,000 McIntosh, AL IDB Weekly VRDNs (Ciba Geigy Corp.)/ (Union Bank of Switzerland, Zurich LOC) A-1+ 2,700,000 -------------------------------------------------- 2,595,000 Mobile, AL Downtown Redevelopment Authority, (Series 1992), 4.15% TOBs (Mitchell Project)/(Trust Company Bank, Atlanta LOC), Mandatory Tender 7/31/1996 P-1 2,595,000 -------------------------------------------------- 2,500,000 Mobile, AL IDA Weekly VRDNs (McRae's Industries, Inc.)/ (Nationsbank, N.A. (Carolinas) LOC) A-1 2,500,000 -------------------------------------------------- 12,000,000 Mobile, AL IDB, 3.90% TOBs (International Paper Co.), Optional Tender 4/15/1996 A- 12,000,000 -------------------------------------------------- 2,160,000 Mobile, AL IDB, IDRB (Series 1989) Weekly VRDNs (Newark Group Industries, Inc.)/(First Fidelity Bank, NA, New Jersey LOC) VMIG1 2,160,000 -------------------------------------------------- 2,000,000 Mobile, AL IDB, PCR (Series 1993A) Weekly VRDNs (Alabama Power Co.)/(Alabama Power Co. GTD) A-1 2,000,000 -------------------------------------------------- 4,000,000 Mobile, AL IDB, PCR (Series 1993B) Weekly VRDNs (Alabama Power Co.)/(Alabama Power Co. GTD) A-1 4,000,000 -------------------------------------------------- 1,000,000 Mobile, AL IDB, Pollution Control Refunding Revenue Bonds, (Series 1992) Weekly VRDNs (Air Products & Chemicals, Inc.) NR(3) 1,000,000 -------------------------------------------------- 3,075,000 Mobile, AL Port City Medical Clinic Board, Revenue Bonds (Series 1992-A), 3.50% CP (Mobile, AL Infirmiary Association)/(Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender 11/29/1995 A+ 3,075,000 --------------------------------------------------
18 ALABAMA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------- ALABAMA--CONTINUED -------------------------------------------------- $ 2,000,000 Mobile, AL Port City Medical Clinic Board, Revenue Bonds (Series 1992-A), 3.80% CP (Mobile, AL Infirmiary Association)/(Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender 12/18/1995 A+ $ 2,000,000 -------------------------------------------------- 1,000,000 Montgomery, AL IDB, (Series 1988A) Weekly VRDNs (Smith Industries)/(Trust Company Bank, Atlanta LOC) A-1 1,000,000 -------------------------------------------------- 2,765,000 Montgomery, AL IDB, (Series 1990-A) Weekly VRDNs (Industrial Partners)/(Wachovia Bank of Georgia NA, Atlanta LOC) Aa2 2,765,000 -------------------------------------------------- 4,030,000 Montgomery, AL IDB, Pollution Control & Solid Disposal Revenue, 3.70% CP (General Electric Co.), Mandatory Tender 1/12/1996 A-1+ 4,030,000 -------------------------------------------------- 5,500,000 Pelham, AL Governmental Utility Services Corp., Wastewater Treatment and Collection Revenue Bonds (Series 1985), 9.25% (Parsons Pelham Associates Project)/ (FGIC INS), 6/1/1996 (@102) Aaa 5,777,456 -------------------------------------------------- 3,800,000 Phoenix City, AL IDB, (Series 1988), 3.70% CP (Mead Coated Board)/(ABN AMRO Bank N.V., Amsterdam LOC), Mandatory Tender 11/21/1995 Aa1 3,800,000 -------------------------------------------------- 3,000,000 Phoenix City, AL IDB, (Series 1988), 3.80% CP (Mead Coated Board)/(ABN AMRO Bank N.V., Amsterdam LOC), Mandatory Tender 1/11/1996 Aa1 3,000,000 -------------------------------------------------- 3,000,000 Phoenix City, AL IDB, (Series 1988), 3.80% CP (Mead Coated Board)/(ABN AMRO Bank N.V., Amsterdam LOC), Mandatory Tender 11/28/1995 Aa1 3,000,000 -------------------------------------------------- 3,500,000 Phoenix City, AL IDB, (Series 1988), 3.80% CP (Mead Coated Board)/(ABN AMRO Bank N.V., Amsterdam LOC), Mandatory Tender 2/8/1996 Aa1 3,500,000 -------------------------------------------------- 930,000 Piedmont, AL IDB Weekly VRDNs (Industrial Partners)/ (Wachovia Bank of Georgia NA, Atlanta LOC) P-1 930,000 --------------------------------------------------
19 ALABAMA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------- ALABAMA--CONTINUED -------------------------------------------------- $ 4,050,000 Scottsboro, AL IDB, (Series 1994) Weekly VRDNs (Maples Industries, Inc.)/(Amsouth Bank N.A., Birmingham LOC) P-1 $ 4,050,000 -------------------------------------------------- 1,750,000 Scottsboro, AL IDB, IDRB (Series 1991) Weekly VRDNs (Maples Industries, Inc.)/(Amsouth Bank N.A., Birmingham LOC) P-1 1,750,000 -------------------------------------------------- 1,300,000 Sumter County, AL IDA, Industrial Revenue Bonds (Series 1995A) Weekly VRDNs (Fulghum Fibres Project (AL))/(First Alabama Bank, Birmingham LOC) P-1 1,300,000 -------------------------------------------------- 1,300,000 Sumter County, AL IDA, Industrial Revenue Bonds (Series 1995B) Weekly VRDNs (Canal Chip Project)/(First Alabama Bank, Birmingham LOC) P-1 1,300,000 -------------------------------------------------- 2,000,000 Tuskegee, AL IDB, IDRB (Series 1995) Weekly VRDNs (Concrete Company (The))/(Columbus Bank and Trust Co., GA LOC) P-1 2,000,000 -------------------------------------------------- 5,755,000 Vincent, AL IDB Weekly VRDNs (Headquarters Partnership Project)/(National Australia Bank, Ltd., Melbourne LOC) P-1 5,755,000 -------------------------------------------------- 2,550,000 Vincent, AL IDB, (Series 1993) Weekly VRDNs (Ebsco Industries, Inc.)/(National Australia Bank, Ltd., Melbourne LOC) A-1+ 2,550,000 -------------------------------------------------- ------------ Total 200,939,668 -------------------------------------------------- ------------ PUERTO RICO--3.3% -------------------------------------------------- 850,000 Puerto Rico Government Development Bank Weekly VRDNs (Credit Suisse, Zurich LOC) A-1+ 850,000 --------------------------------------------------
20 ALABAMA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------- PUERTO RICO--CONTINUED -------------------------------------------------- $ 5,000,000 Puerto Rico Government Development Bank, 3.80% CP, Mandatory Tender 12/8/1995 A-1+ $ 5,000,000 -------------------------------------------------- 1,000,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1983A), 3.75% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank N.V., Amsterdam LOC), Optional Tender 9/1/1996 A-1+ 1,000,000 -------------------------------------------------- ------------ Total 6,850,000 -------------------------------------------------- ------------ TOTAL INVESTMENTS (AT AMORTIZED COST)(a) $207,789,668 -------------------------------------------------- ------------ ------------
Securities that are subject to Alternative Minimum Tax represent 38.6% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($209,490,429) at October 31, 1995. 21 ALABAMA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronyms are used throughout this portfolio: BANs --Bond Anticipation Notes CP --Commercial Paper FGIC --Financial Guaranty Insurance Company GIC --Guaranteed Investment Contract GO --General Obligation GTD --Guaranty HFA --Housing Finance Authority IDA --Industrial Development Authority IDB --Industrial Development Bond IDR --Industrial Development Revenue IDRB --Industrial Development Revenue Bonds INS --Insured LIQ --Liquidity Agreement LOC --Letter of Credit MBIA --Municipal Bond Investors Assurance PCA --Pollution Control Authority PCR --Pollution Control Revenue PLC --Public Limited Company PRF --Prerefunded SFM --Single Family Mortgage TOBs --Tender Option Bonds UT --Unlimited Tax VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) 22 ALABAMA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ----------------------------------------------------------------- Total investments in securities, at amortized cost and value $207,789,668 - ----------------------------------------------------------------- Cash 271,129 - ----------------------------------------------------------------- Income receivable 1,783,964 - ----------------------------------------------------------------- Deferred expenses 36,789 - ----------------------------------------------------------------- ------------ Total assets 209,881,550 - ----------------------------------------------------------------- LIABILITIES: - ----------------------------------------------------------------- Payable for shares redeemed $ 59,073 - ------------------------------------------------------ Income distribution payable 274,600 - ------------------------------------------------------ Accrued expenses 57,448 - ------------------------------------------------------ -------- Total liabilities 391,121 - ----------------------------------------------------------------- ------------ Net Assets for 209,490,429 shares outstanding $209,490,429 - ----------------------------------------------------------------- ------------ ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ----------------------------------------------------------------- $209,490,429 DIVIDED BY 209,490,429 shares outstanding $ 1.00 - ----------------------------------------------------------------- ------------ ------------
(See Notes which are an integral part of the Financial Statements) 23 ALABAMA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ------------------------------------------------------------------- Interest $6,685,731 - ------------------------------------------------------------------- EXPENSES: - ------------------------------------------------------------------- Investment advisory fee $ 820,528 - ------------------------------------------------------ Administrative personnel and services fee 131,658 - ------------------------------------------------------ Custodian fees 20,644 - ------------------------------------------------------ Transfer and dividend disbursing agent fees and expenses 16,241 - ------------------------------------------------------ Directors'/Trustees' fees 2,050 - ------------------------------------------------------ Auditing fees 9,750 - ------------------------------------------------------ Legal fees 1,774 - ------------------------------------------------------ Portfolio accounting fees 33,124 - ------------------------------------------------------ Shareholder services fee 410,264 - ------------------------------------------------------ Share registration costs 32,059 - ------------------------------------------------------ Printing and postage 14,718 - ------------------------------------------------------ Insurance premiums 5,531 - ------------------------------------------------------ Miscellaneous 11,471 - ------------------------------------------------------ ---------- Total expenses 1,509,812 - ------------------------------------------------------ Waivers-- - ------------------------------------------ Waiver of investment advisory fee $(606,516) - ------------------------------------------ Waiver of shareholder services fee (110,893) - ------------------------------------------ --------- Total waivers (717,409) - ------------------------------------------------------ ---------- Net expenses 792,403 - ------------------------------------------------------------------- ---------- Net investment income $5,893,328 - ------------------------------------------------------------------- ----------
(See Notes which are an integral part of the Financial Statements) 24 ALABAMA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED OCTOBER 31, 1995 OCTOBER 31, 1994(a) ----------------- ------------------- INCREASE (DECREASE) IN NET ASSETS: - ---------------------------------------- OPERATIONS-- - ---------------------------------------- Net investment income $ 5,893,328 $ 1,301,466 - ---------------------------------------- ----------------- ------------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ---------------------------------------- Distributions from net investment income (5,893,328) (1,301,466) - ---------------------------------------- ----------------- ------------------- SHARE TRANSACTIONS-- - ---------------------------------------- Proceeds from sale of shares 826,956,278 478,251,901 - ---------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,071,166 606,720 - ---------------------------------------- Cost of shares redeemed (762,340,876) (336,054,760) - ---------------------------------------- ----------------- ------------------- Change in net assets resulting from share transactions 66,686,568 142,803,861 - ---------------------------------------- ----------------- ------------------- Change in net assets 66,686,568 142,803,861 - ---------------------------------------- NET ASSETS: - ---------------------------------------- Beginning of period 142,803,861 -- - ---------------------------------------- ----------------- ------------------- End of period $ 209,490,429 $ 142,803,861 - ---------------------------------------- ----------------- ------------------- ----------------- -------------------
(a) For the period from November 29, 1993 (start of business) to October 31, 1994. (See Notes which are an integral part of the Financial Statements) 25 ALABAMA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Alabama Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 78.9% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or supported (backed) by a letter of credit for any one institution or agency does not exceed 7.5% of total investments. 26 ALABAMA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). At October 31, 1995, capital paid-in aggregated $209,490,429. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31 -------------------------- 1995 1994 (a) - ---------------------------------------------------- ------------ ------------ Shares sold 826,956,278 478,251,901 - ---------------------------------------------------- Shares issued to shareholders in payment of distributions declared 2,071,166 606,720 - ---------------------------------------------------- Shares redeemed (762,340,876) (336,054,760) - ---------------------------------------------------- ------------ ------------ Net change resulting from share transactions 66,686,568 142,803,861 - ---------------------------------------------------- ------------ ------------ ------------ ------------
(a) For the period from November 29, 1993 (start of business) to October 31, 1994. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net assets of the Fund for the period. This fee is to obtain certain services for shareholders and to 27 ALABAMA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntarily waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses of $26,461 and start-up administrative service expenses of $31,250 were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organizational and start-up administrative expenses during the five year period following effective date. For the period ended October 31, 1995, the Fund paid $3,381 and $3,993, respectively, pursuant to this agreement. INTERFUND TRANSACTIONS--During the period ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common officers. These transactions were made at current market value pursuant to rule 17a-7 under the Act amounting to $514,285,000 and $499,300,000 respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 28 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Alabama Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Alabama Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets and the financial highlights (see page 2 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Alabama Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania, December 15, 1995 29 ADDRESSES - -------------------------------------------------------------------------------- Alabama Municipal Cash Trust Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------- Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 - ------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - ------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - -------------------------------------------------------------------------------------------
30 - -------------------------------------------------------------------------------- ALABAMA MUNICIPAL CASH TRUST PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 [FEDERATED SECURITIES CORP. LOGO] Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-377912436 Cusip 314229790 3090802A (12/95) [RECYCLED PAPER LOGO] RECYCLED ALABAMA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus of Alabama Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal Trust (the "Trust") dated December 31, 1995. This Statement is not a prospectus. You may request a copy of the prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-235-4669. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1995 FEDERATED SECURITIES CORP. Distributor A subsidiary of Federated Investors INVESTMENT POLICIES 1 OTHER SERVICES 22 Acceptable Investments 1 Fund Administration 22 Participation Interests 1 Custodian and Portfolio Recordkeeper Municipal Leases 1 23 Ratings 2 Transfer Agent 23 When-Issued and Delayed Independent Public Accountants 23 Delivery Transactions 3 SHAREHOLDER SERVICES AGREEMENT 23 Repurchase Agreements 3 DETERMINING NET ASSET VALUE 24 Reverse Repurchase Agreements 3 Credit Enhancement 4 REDEMPTION IN KIND 25 ALABAMA INVESTMENT RISKS 4 MASSACHUSETTS PARTNERSHIP LAW 25 INVESTMENT LIMITATIONS 6 THE FUND'S TAX STATUS 26 Regulatory Compliance 9 PERFORMANCE INFORMATION 26 FEDERATED MUNICIPAL TRUST MANAGEMENT 9 Yield 26 Effective Yield 27 Share Ownership 18 Tax-Equivalent Yield 27 Trustees Compensation 18 Tax-Equivalency Table 27 Trustee Liability 20 Total Return 29 INVESTMENT ADVISORY SERVICES 20 Performance Comparisons 29 Investment Adviser 20 ABOUT FEDERATED INVESTORS 30 Advisory Fees 20 APPENDIX 32 BROKERAGE TRANSACTIONS 21 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security, the issuer of any demand feature applicable to the security, or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of non-appropriation"); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1, or 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 rating categories. See "Regulatory Compliance." WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated on the Fund`s records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument in return for a percentage of the instrument's market value in cash and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but does not ensure this result. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are: segregated on the Fund's records at the trade date; marked to market daily; and maintained until the transaction is settled. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit-enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the "credit enhancer"), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. ALABAMA INVESTMENT RISKS The State of Alabama has experienced some diversification of its economy primarily centered around its metropolitan areas. Agriculture, dominant prior to World War II has given way to the manufacturing of textiles, chemicals, paper, and metals. Manufacturing comprises roughly 23% of Alabama's non-agricultural employment, slightly above the rest of the US., and continues to remain strong as evidenced by Mercedes-Benz's decision to locate a plant in Alabama. Other major non-agricultural sectors include government (20%); wholesale and retail trade (22%); and services, including finance, insurance, and real estate (24%). Over the last decade, the economy has further diversified with the addition of high-tech firms to the Huntsville area and healthcare services to the Birmingham area. During the 1982 recession Alabama's unemployment rate climbed into double digits. The recent recession, however, has not been as severe to the Alabama economy. The state's unemployment rate has reflected national trends (5.5% as of April 1995). However the North American Free Trade Agreement leaves Alabama exposed to potential job losses in some traditional industries as Mexico offers a lower-cost environment. Alabama's overall debt structure is more complex than most states, due to its many issuing authorities. Roughly 60% of Alabama's debts are special or limited tax obligations, payable from designated sources. Debt service as a percentage of budget revenues is currently 4.8%, which is above average for the nation. However, since Alabama generally taxes and spends less than most states, debt service appears as a larger part of its revenue in relation to other states. Debt service on a per capita basis is moderate. The state has a strong balanced budget act that allows spending only from moneys on hand. The governor has the ability to prorate budgeted expenditures during the fiscal year in order to balance the budget. This proration ability has been challenged in court, and the outcome may adversely affect the mechanism by which the budget is balanced. Furthermore, Alabama's school funding has been challenged; resolution of this matter may affect the state budget. The Fund's concentration in securities issued by the state and its political subdivisions provides a greater level of risk than a fund whose assets are diversified across numerous states and municipal issuers. The ability of the state or its municipalities to meet their obligations will depend upon the availability of tax and other revenues; economic, political, and demographic conditions within the state; and the underlying fiscal condition of the state, its counties, and municipalities. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as may be necessary for clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one-third of the value of its net assets, including the amounts borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of its total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets except that it may acquire publicly or nonpublicly issued Alabama municipal securities or temporary investments or enter into repurchase agreements in accordance with its investment objective, policies, limitations, and its Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate or real estate limited partnerships, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities, if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above limitations cannot be changed without shareholder approval. The following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its total assets in securities subject to restrictions on resale under federal securities law, except for restricted securities determined to be liquid under criteria established by the Trustees. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers (including companies responsible for paying principal and interest on industrial development bonds) which have records of less than three years of continuous operations, including the operation of any predecessor. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES The Fund will not purchase or retain the securities of any issuer if the Officers and Trustees of the Trust or its investment adviser, owning individually more than .50 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. INVESTING IN MINERALS The Fund will not purchase or sell interests in oil, gas, or other mineral exploration or development programs or leases, although it may purchase the securities of issuers which invest in or sponsor such programs. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments, as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT OFFICERS AND TRUSTEES ARE LISTED WITH THEIR ADDRESSES, BIRTHDATES, PRESENT POSITIONS WITH FEDERATED MUNICIPAL TRUST, AND PRINCIPAL OCCUPATIONS. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President of the Trust . Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds; formerly, Senior Partner, Ernst & Young LLP. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; President, Northgate Village Development Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Director, Trustee, or Managing General Partner of the Funds; formerly, President, Naples Property Management, Inc. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee, or Managing General Partner of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine and Member, Board of Trustees, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director, Trustee, or Managing General Partner of the Funds. Edward L. Flaherty, Jr.@ Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director, Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson * Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. and Federated Administrative Services. Peter E. Madden Seacliff 562 Bellevue Avenue Newport, RI Birthdate: March 16, 1942 Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, Trustee, or Managing General Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation. Gregor F. Meyer Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General Partner of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director, Trustee or Managing General Partner of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics and Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; founding Chairman, National Advisory Council for Environmental Policy and Technology and Federal Emergency Management Advisory Board. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/marketing consultant; Conference Coordinator, Non-profit entities; Director, Trustee, or Managing General Partner of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative Services, Federated Services Company, and Federated Shareholder Services; 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 of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. David M. Taylor Federated Investors Tower Pittsburgh, PA Birthdate: January 13, 1947 Treasurer Senior Vice President, Controller, and Trustee, Federated Investors; Controller, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., and Passport Research, Ltd.; Senior Vice President, Federated Shareholder Services; Vice President, Federated Administrative Services; Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President and Secretary Executive Vice President, Secretary, General Counsel, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds. * This Trustee is deemed to be an "interested person" as defined in the Investment Company Act of 1940. @ Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. As referred to in the list of Trustees and Officers, "Funds" includes the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Master Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5 Years; 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; 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 U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut 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; The Virtus Funds; World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 4, 1995, the following shareholders of record owned 5% or more of the outstanding shares of the Alabama Municipal Cash Trust: EBSCO Industries, Inc., Birmingham, AL, 13.69%; Lynspen & Co., Birmingham, AL, 18.13%; and HUBCO, Birmingham, AL, 20.73%. TRUSTEES COMPENSATION
AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 68 other investment companies in the Fund Complex Thomas G. Bigley $2,458 $20,688 for the Trust and Trustee 49 other investment companies in the Fund Complex John T. Conroy, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex William J. Copeland $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Peter E. Madden $2,757 $90,563 for the Trust and Trustee 64 other investment companies in the Fund Complex Gregor F. Meyer $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex John E. Murray, Jr., $1,762 $0 for the Trust and Trustee 64 other investment companies in the Fund Complex Wesley W. Posvar $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Marjorie P. Smuts $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex
*Information is furnished for the fiscal year ended October 31, 1995. #The aggregate compensation is provided for the Trust which is comprised of 15 portfolios. +The information is provided for the last calendar year. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal year ended October 31, 1995, and for the period from November 29, 1993 (start of business), to October 31, 1994, the adviser earned $820,528, and $243,579, respectively, of which $606,516 and $0, respectively, were waived. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this 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 fees. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Board of Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal year ended October 31, 1995, and for the period from November 29, 1993 (start of business), to October 31, 1994, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc., also a subsidiary of Federated Investors, served as the Fund's Administrator. (For purposes of this Statement of Additional Information, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the "Administrators.") For the fiscal year ended October 31, 1995, and for the period from November 29, 1993 (start of business), to October 31, 1994, the Administrators earned $131,658 and $52,411, respectively. Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, holds approximately 20% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. CUSTODIAN AND PORTFOLIO RECORDKEEPER State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. TRANSFER AGENT As transfer agent, Federated Services Company maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES AGREEMENT This arrangement permits the payment of fees to Federated Shareholder Services and financial institutions to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balance; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Board of Trustees expects that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal year ending October 31, 1995, the Fund paid Shareholder Services fees in the amount of $410,264 of which $110,893 was waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. The Fund's yield for the seven-day period ended October 31, 1995, was 3.55%. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. The Fund's effective yield for the seven-day period ended October 31, 1995, was 3.62%. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal rate for individuals) and assuming that income is 100% exempt. The Fund's tax-equivalent yield for the seven-day period ended October 31, 1995, was 6.41%. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a "tax-free" investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1995 State of Alabama TAX BRACKET Combined Federal and State:20.00% 33.00% 36.00% 41.00% 44.60% Joint Return$1-39,000$39,001-94,250 $94,251-143,600$143,601-$256,500 OVER $256,500 Single Return$1-23,350 $23,351-56,550$56,551-117,950$117,951-256,500 OVER $256,500 Tax-Exempt Yield Taxable Yield Equivalent 2.50 3.13 3.73 3.91 4.24 4.51 3.00 3.75 4.48 4.69 5.08 5.42 3.50 4.38 5.22 5.47 5.93 6.32 4.00 5.00 5.97 6.25 6.78 7.22 4.50 5.63 6.72 7.03 7.63 8.12 5.00 6.25 7.46 7.81 8.47 9.03 5.50 6.88 8.21 8.59 9.32 9.93 6.00 7.50 8.96 9.38 10.17 10.83 6.50 8.13 9.70 10.16 11.02 11.73 7.00 8.75 10.45 10.94 11.86 12.64 Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. If you itemize deductions, your taxable yield equivalent will be lower. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. The Fund's average annual total returns for the one-year period ended October 31, 1995 and for the period from December 3, 1993 (date of initial public investment) through October 31, 1995 were 3.66% and 3.13%, respectively. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: O LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. o MONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1994, Federated Investors managed more than $31 billion in assets across approximately 43 money market funds, including 17 government, 8 prime and 18 municipal with assets approximating $17 billion, $7.4 billion and $6.6 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $2 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. *Source: Investment Company Institute TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity concerns and market access risks unique to notes. SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus sign (+) designation. SP-2 Satisfactory capacity to pay principal and interest. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a variable rate demand feature. The first rating (long-term rating) addresses the likelihood of repayment of principal and interest when due, and the second rating (short-term rating) describes the demand characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long- term and the short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. LONG-TERM DEBT RATINGS AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rate "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATINGS Moody's Investor Service, Inc. (Moody's) short-term ratings are designated Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG ratings is to provide investors with a simple system by which the relative investment qualities of short-term obligations may be evaluated. MIG1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad based access to the market for refinancing. MIG2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. In this case, two ratings are usually assigned, (for example, AAA/VMIG-1); the first representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the second representing an evaluation of the degree of risk associated with the demand feature. The VMIG rating can be assigned a 1 or 2 designation using the same definitions described above for the MIG rating. COMMERCIAL PAPER (CP) RATINGS P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well established industries, high rates of return on funds employed, conservative capitalization structure with moderate reliance on debt and ample asset protection, broad margins in earning coverage of fixed financial charges and high internal cash generation, well-established access to a range of financial markets and assured sources of alternate liquidity P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. LONG-TERM DEBT RATINGS AAA Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes is can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in AAA securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. NR Indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P or Moody's with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated A-1 or P-1. NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated "AAA" by S&P or "AAA" by Moody's. NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated "AA" by S&P or "AA" by Moody's. NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated "A" by S&P or Moody's. Cusip 314229790 NORTH CAROLINA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) PROSPECTUS The shares of North Carolina Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term North Carolina municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of North Carolina, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and the income tax imposed by the State of North Carolina consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - -------------------------------------------------- FINANCIAL HIGHLIGHTS 2 - -------------------------------------------------- GENERAL INFORMATION 3 - -------------------------------------------------- INVESTMENT INFORMATION 3 - -------------------------------------------------- Investment Objective 3 Investment Policies 3 North Carolina Municipal Securities 6 Investment Risks 6 Non-Diversification 7 Investment Limitations 7 FUND INFORMATION 7 - -------------------------------------------------- Management of the Fund 7 Distribution of Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - -------------------------------------------------- HOW TO PURCHASE SHARES 9 - -------------------------------------------------- Special Purchase Features 10 HOW TO REDEEM SHARES 10 - -------------------------------------------------- Special Redemption Features 12 ACCOUNT AND SHARE INFORMATION 12 - -------------------------------------------------- TAX INFORMATION 13 - -------------------------------------------------- Federal Income Tax 13 State and Local Taxes 13 PERFORMANCE INFORMATION 14 - -------------------------------------------------- FINANCIAL STATEMENTS 15 - -------------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 26 - -------------------------------------------------- ADDRESSES 27 - --------------------------------------------------
I SUMMARY OF FUND EXPENSES - --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................... None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)....................................................................... None Redemption Fee (as a percentage of amount redeemed, if applicable)............................... None Exchange Fee..................................................................................... None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)................................................................ 0.10% 12b-1 Fee........................................................................................ None Total Other Expenses............................................................................. 0.49% Shareholder Services Fee............................................................ 0.25% Total Fund Operating Expenses (2)........................................................ 0.59%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The total operating expenses would have been 0.99% absent the voluntary waiver of a portion of the management fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Trust will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information". Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ----------------------------------------------------------------- --------- --------- --------- --------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period................................................. $6 $19 $33 $74
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 1 NORTH CAROLINA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 26.
YEAR ENDED OCTOBER 31, ----------------------- 1995 1994(a) - ------------------------------------------------------------------------ ---------- ----------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 - ------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------------------------ Net investment income 0.04 0.02 - ------------------------------------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------------------------------------ Distributions from net investment income (0.04) (0.02) - ------------------------------------------------------------------------ ---------- ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 - ------------------------------------------------------------------------ ---------- ----------- ---------- ----------- TOTAL RETURN (b) 3.51% 2.06% - ------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------ Expenses 0.59% 0.49%* - ------------------------------------------------------------------------ Net investment income 3.46% 2.54%* - ------------------------------------------------------------------------ Expense waiver/reimbursement (c) 0.40% 0.44%* - ------------------------------------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------------------------------------ Net assets, end of period (000 omitted) $97,602 $85,249 - ------------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from December 31, 1993 (date of initial public investment) to October 31, 1994. For the period from November 29, 1993 (start of business) to December 31, 1993, the Fund had no investment activity. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) 2 GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The Fund is designed for financial institutions acting in an agency or fiduciary capacity as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term North Carolina municipal securities. The Fund may not be a suitable investment for retirement plans or for non-North Carolina taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the income tax imposed by the State of North Carolina consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of North Carolina municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and North Carolina state income tax or at least 80% of its net assets will be invested in obligations, the interest income from which is exempt from federal regular and North Carolina state income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of North Carolina and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and North Carolina income tax 3 ("North Carolina Municipal Securities"). Examples of North Carolina Municipal Securities include, but are not limited to: - tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; - bond anticipation notes ("BANs") that are intended to be refinanced through a later issuance of longer-term bonds; - municipal commercial paper and other short-term notes; - variable rate demand notes; - municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and - participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in North Carolina Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying North Carolina Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party 4 providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the 5 organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain North Carolina Municipal Securities is subject to the federal alternative minimum tax. NORTH CAROLINA MUNICIPAL SECURITIES North Carolina Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. North Carolina Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of North Carolina Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on North Carolina Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of North Carolina Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of North Carolina Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in North Carolina Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these North Carolina Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of North Carolina Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing 6 other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other 7 expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of shares, computed at an annual rate, to obtain certain personal services for shareholders and provide the maintenance of shareholder accounts ("shareholder services"). From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based 8 upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor may pay financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide certain services to shareholders. These services may include, but are not limited to, distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of shares. Any fees paid for these services by the distributor will be reimbursed by the adviser and not the Fund. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS -------------------- ------------------------------------ .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of its shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting total liabilities from total assets and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or 9 by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: North Carolina Municipal Cash Trust; Fund Number (this number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to North Carolina Municipal Cash Trust. Please include an account number on the check. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. 10 REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit 11 Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the checkwriting program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio, only shares of that portfolio are entitled to vote. The 12 Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than North Carolina. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. NORTH CAROLINA TAXES. Under existing North Carolina laws, distributions made by the Fund will not be subject to North Carolina income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest on obligations of the state of North Carolina or any of its political subdivisions; or (ii) interest of obligations of the United 13 States or its possessions. Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to North Carolina income taxes. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. 14 NORTH CAROLINA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - -------------- ------------------------------------------------------------ ------- ----------- SHORT-TERM MUNICIPAL SECURITIES--99.0% - ------------------------------------------------------------------------------- NORTH CAROLINA--88.8% ------------------------------------------------------------ $1,755,000 Alamance County, NC Industrial Facilities Authority, (Series B) Weekly VRDNs (Culp, Inc.)/(First Union National Bank, Charlotte, N.C. LOC) P-1 $ 1,755,000 ------------------------------------------------------------ 1,600,000 Buncombe County, NC Industrial Facilities & Pollution Control Financing Authority, (Series 1991) Weekly VRDNs (Rich Mount, Inc.)/(Bank of Tokyo Ltd., Tokyo LOC) A-1 1,600,000 ------------------------------------------------------------ 2,000,000 Buncombe County, NC, 3.80% BANs, 2/14/1996 NR(3) 2,000,833 ------------------------------------------------------------ 2,055,000 Burke County, NC Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Norwalk Furniture Corp & Hickory Furniture)/(Branch Banking & Trust Co., Wilson LOC) P-1 2,055,000 ------------------------------------------------------------ 910,000 Catawba County, NC Industrial Facilities & Pollution Control Financing Authority, (Series 1992) Weekly VRDNs (WSMP, Inc.)/(Nationsbank, N.A. (Carolinas) LOC) A-1 910,000 ------------------------------------------------------------ 4,600,000 Catawba County, NC Industrial Facilities & Pollution Control Financing Authority, (Series 1994) Weekly VRDNs (Ethan Allen Inc Project)/(Bankers Trust Co., New York LOC) P-1 4,600,000 ------------------------------------------------------------ 4,445,600 (a) Charlotte-Mecklenburg Hospital Authority, NC, Loan Participation Certificates (1995) VRNs (The Charlotte- Mecklenburg Hospital Authority), 5/22/1996 NR(2) 4,445,600 ------------------------------------------------------------ 3,865,000 Cleveland County, NC Industrial Facilities and Pollution Control Financing Authority, IDRB (Series 1990) Weekly VRDNs (MetalsAmerica, Inc. Project)/(Nationsbank, N.A. (Carolinas) LOC) P-1 3,865,000 ------------------------------------------------------------ 1,200,000 Cleveland County, NC Industrial Facilities and Pollution Control Financing Authority, Pollution Control Revenue Bonds (Series 1995) Weekly VRDNs (Grover Industries, Inc. Project)/(Bank of America Illinois LOC) P-1 1,200,000 ------------------------------------------------------------
15 NORTH CAROLINA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - -------------- ------------------------------------------------------------ ------- ----------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------- NORTH CAROLINA--CONTINUED ------------------------------------------------------------ $1,000,000 Davidson County, NC Industrial Facilities & PCFA, IDRB (Series 1995) Weekly VRDNs (Lawrence Industries, Inc. Project)/(Branch Banking & Trust Co., Wilson LOC) P-1 $ 1,000,000 ------------------------------------------------------------ 1,165,000 Durham & Wake Counties Special Airport District, NC, 5.75% Bonds, 4/1/1996 Aaa 1,174,387 ------------------------------------------------------------ 2,110,000 Greensboro, NC , 6.00% Bonds, 3/1/1996 AAA 2,127,021 ------------------------------------------------------------ 1,800,000 Guilford County, NC Industrial Facilities & PCFA, (Series 1989) Weekly VRDNs (Bonset America Corp.)/ (Dai-Ichi Kangyo Bank Ltd., Tokyo and Industrial Bank of Japan Ltd., Tokyo LOCs) A-1 1,800,000 ------------------------------------------------------------ 2,000,000 Guilford County, NC Industrial Facilities & PCFA, (Series 1989) Weekly VRDNs (Culp, Inc.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) P-1 2,000,000 ------------------------------------------------------------ 7,000,000 Halifax County, NC Industrial Facilities & PCFA Weekly VRDNs (Flambeau Airmold Project)/(Norwest Bank Minnesota, Minneapolis LOC) P-1 7,000,000 ------------------------------------------------------------ 1,000,000 Iredell County, NC Industrial Facilities & Pollution Control Financing Authority, Industrial Revenue Bonds Weekly VRDNs (Jet Corr, Inc. Project)/(National Bank of Canada, Montreal LOC) P-1 1,000,000 ------------------------------------------------------------ 3,000,000 Lincoln County, NC Industrial Facilities & Pollution Control Financing Authority, Industrial Revenue Bonds Weekly VRDNs (Leucadia, Inc. Project)/(National Bank of Canada, Montreal LOC) P-1 3,000,000 ------------------------------------------------------------ 2,000,000 Mecklenberg County, NC Industrial Facility & PCFA Weekly VRDNs (Manhasset Bay Associates)/(Bank of Tokyo Ltd., Tokyo LOC) A-1 2,000,000 ------------------------------------------------------------ 1,555,000 New Hanover County, NC PCFA, (Series 1990), 4.15% TOBs (Wilmington Machinery Inc. Project)/(Branch Banking & Trust Co., Wilson LOC), Optional Tender 9/1/1996 P-1 1,555,000 ------------------------------------------------------------
16 NORTH CAROLINA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - -------------- ------------------------------------------------------------ ------- ----------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------- NORTH CAROLINA--CONTINUED ------------------------------------------------------------ $2,037,000 North Carolina Eastern Municipal Power Agency, 3.75% CP (Industrial Bank of Japan Ltd., Tokyo LOC), Mandatory Tender 12/12/1995 P-1 $ 2,037,000 ------------------------------------------------------------ 5,000,000 North Carolina Eastern Municipal Power Agency, 3.85% CP (Industrial Bank of Japan Ltd., Tokyo LOC), Mandatory Tender 11/20/1995 P-1 5,000,000 ------------------------------------------------------------ 1,600,000 North Carolina Medical Care Commission Hospital, Revenue Bonds (Series 1992B) Weekly VRDNs (North Carolina Baptist) A-1+ 1,600,000 ------------------------------------------------------------ 3,200,000 North Carolina Medical Care Commission Hospital, Revenue Bonds (Series 1993) Weekly VRDNs (Moses H. Cone Memorial) A-1+ 3,200,000 ------------------------------------------------------------ 5,000,000 North Carolina Municipal Power Agency No. 1, 3.80% CP (Bank of America NT and SA, San Francisco, Canadian Imperial Bank of Commerce, Toronto, First Union National Bank, Charlotte, N.C., Industrial Bank of Japan Ltd., Tokyo, Morgan Guaranty Trust Co., New York and Nationsbank, N.A. (Carolinas) LIQs), Mandatory Tender 12/12/1995 P-1 5,000,000 ------------------------------------------------------------ 2,875,000 North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue Bonds, 9.00% Bonds (United States Treasury PRF), 1/1/1996 (@102) AAA 2,951,685 ------------------------------------------------------------ 4,000,000 North Carolina State, Clean Water Bonds, (Series 1995B), 4.25% Bonds, 6/1/1996 Aaa 4,014,636 ------------------------------------------------------------ 1,400,000 Piedmont, NC Airport Authority Weekly VRDNs (Triad International Maintenance Corp.)/(Mellon Bank NA, Pittsburgh LOC) P-1 1,400,000 ------------------------------------------------------------ 2,100,000 Randolph County, NC IDA, (Series 1990) Weekly VRDNs (Wayne Steel, Inc.)/(Bank One, Akron, N.A. LOC) P-1 2,100,000 ------------------------------------------------------------ 4,000,000 Richmond County, NC Industrial Facilities & Pollution Control, (Series 1991) Weekly VRDNs (Bibb Company)/ (Citibank NA, New York LOC) A-1 4,000,000 ------------------------------------------------------------
17 NORTH CAROLINA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - -------------- ------------------------------------------------------------ ------- ----------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------- NORTH CAROLINA--CONTINUED ------------------------------------------------------------ $1,000,000 University of North Carolina at Chapel Hill, 4.00% Bonds, 8/1/1996 AA $ 1,001,447 ------------------------------------------------------------ 3,000,000 Wake County, NC Industrial Facilities & PCFA, (Series 1990B), 3.95% CP (Carolina Power & Light Co.)/(Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender 1/22/1996 P-1 3,000,000 ------------------------------------------------------------ 4,249,291 Wayne County, NC PCFA Weekly VRDNs (Cooper Industries, Inc.)/(Sanwa Bank Ltd., Osaka LOC) A-1+ 4,249,291 ------------------------------------------------------------ 2,000,000 Wilson County, NC PCA, (Series 1994) Weekly VRDNs (Granutec, Inc.)/(Branch Banking & Trust Co., Wilson LOC) P-1 2,000,000 ------------------------------------------------------------ ----------- Total 86,641,900 ------------------------------------------------------------ ----------- PUERTO RICO--7.7% ------------------------------------------------------------ 500,000 Puerto Rico Government Development Bank Weekly VRDNs (Credit Suisse, Zurich LOC) A-1+ 500,000 ------------------------------------------------------------ 4,000,000 Puerto Rico Government Development Bank, 3.70% CP, Mandatory Tender 12/11/1995 A-1+ 4,000,000 ------------------------------------------------------------ 3,000,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1983A), 3.75% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank N.V., Amsterdam LOC), Optional Tender 9/1/1996 A-1+ 3,000,000 ------------------------------------------------------------ ----------- Total 7,500,000 ------------------------------------------------------------ ----------- VIRGIN ISLANDS--2.5% ------------------------------------------------------------ 2,500,000 Virgin Islands HFA, Single Family Mortgage Revenue Refunding Bonds (1995 Series B), 4.375% TOBs (FGIC INS), Optional Tender 2/1/1996 A-1+ 2,500,000 ------------------------------------------------------------ ----------- TOTAL INVESTMENTS, (AT AMORTIZED COST)(b) $96,641,900 ------------------------------------------------------------ ----------- -----------
Securities that are subject to Alternative Minimum Tax represent 44.2% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. This security has been determined to be liquid under criteria established by the Board of Trustees. At the end of the period, this security amounted to $4,445,600 which represents 4.6% of net assets. (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($97,601,947) at October 31, 1995. 18 NORTH CAROLINA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronyms are used throughout this portfolio: BANs --Bond Anticipation Notes CP --Commercial Paper FGIC --Financial Guaranty Insurance Company HFA --Housing Finance Authority IDA --Industrial Development Authority IDRB --Industrial Development Revenue Bonds INS --Insured LIQs --Liquidity Agreement(s) LOCs --Letter(s) of Credit LOC --Letter of Credit PCA --Pollution Control Authority PCFA --Pollution Control Finance Authority PRF --Prerefunded TOBs --Tender Option Bonds VRDNs --Variable Rate Demand Notes VRNs --Variable Rate Notes (See Notes which are an integral part of the Financial Statements) 19 NORTH CAROLINA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------- Total investments in securities, at amortized cost and value $96,641,900 - ------------------------------------------------------------------- Cash 452,666 - ------------------------------------------------------------------- Income receivable 610,771 - ------------------------------------------------------------------- Receivable for shares sold 548 - ------------------------------------------------------------------- Deferred expenses 36,342 - ------------------------------------------------------------------- ----------- Total assets 97,742,227 - ------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------- Payable for shares redeemed $57,000 - ---------------------------------------------------------- Income distribution payable 51,537 - ---------------------------------------------------------- Accrued expenses 31,743 - ---------------------------------------------------------- ------- Total liabilities 140,280 - ------------------------------------------------------------------- ----------- NET ASSETS for 97,601,947 shares outstanding $97,601,947 - ------------------------------------------------------------------- ----------- ----------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------- $97,601,947 DIVIDED BY 97,601,947 shares outstanding $ 1.00 - ------------------------------------------------------------------- ----------- -----------
(See Notes which are an integral part of the Financial Statements) 20 NORTH CAROLINA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - -------------------------------------------------------------------- Interest $4,352,210 - -------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------- Investment advisory fee $ 537,013 - -------------------------------------------------------- Administrative personnel and services fee 125,000 - -------------------------------------------------------- Custodian fees 29,641 - -------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 18,047 - -------------------------------------------------------- Directors'/Trustees' fees 1,382 - -------------------------------------------------------- Auditing fees 9,750 - -------------------------------------------------------- Legal fees 1,415 - -------------------------------------------------------- Portfolio accounting fees 27,535 - -------------------------------------------------------- Shareholder services fee 268,507 - -------------------------------------------------------- Share registration costs 23,596 - -------------------------------------------------------- Printing and postage 13,496 - -------------------------------------------------------- Insurance premiums 4,623 - -------------------------------------------------------- Miscellaneous 8,831 - -------------------------------------------------------- ---------- Total expenses 1,068,836 - -------------------------------------------------------- Deduct--Waiver of investment advisory fee (433,120) - -------------------------------------------------------- ---------- Net expenses 635,716 - -------------------------------------------------------------------- ---------- Net investment income $3,716,494 - -------------------------------------------------------------------- ---------- ----------
(See Notes which are an integral part of the Financial Statements) 21 NORTH CAROLINA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED OCTOBER 31, 1995 OCTOBER 31, 1994(a) ---------------- ------------------- INCREASE (DECREASE) IN NET ASSETS: - --------------------------------------------- OPERATIONS-- - --------------------------------------------- Net investment income $ 3,716,494 $ 1,501,904 - --------------------------------------------- ---------------- ------------------- DISTRIBUTIONS TO SHAREHOLDERS-- - --------------------------------------------- Distributions from net investment income (3,716,494) (1,501,904) - --------------------------------------------- ---------------- ------------------- SHARE TRANSACTIONS-- - --------------------------------------------- Proceeds from sale of shares 901,368,780 539,042,342 - --------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,529,218 1,065,423 - --------------------------------------------- Cost of shares redeemed (891,545,071) (454,858,745) - --------------------------------------------- ---------------- ------------------- Change in net assets resulting from share transactions 12,352,927 85,249,020 - --------------------------------------------- ---------------- ------------------- Change in net assets 12,352,927 85,249,020 - --------------------------------------------- NET ASSETS: - --------------------------------------------- Beginning of period 85,249,020 -- - --------------------------------------------- ---------------- ------------------- End of period $ 97,601,947 $ 85,249,020 - --------------------------------------------- ---------------- ------------------- ---------------- -------------------
(a) For the period from November 29, 1993 (start of business) to October 31, 1994. (See Notes which are an integral part of the Financial Statements) 22 NORTH CAROLINA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of North Carolina Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 70.4% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or supported (backed) by a letter of credit for any one institution or agency does not exceed 8.2% of total investments. 23 NORTH CAROLINA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1995 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST - ---------------------------------------------------- ---------------- ---------------- Charlotte-Mecklenburg Hospital Authority, NC, Loan Participation Certificates (1995) VRNs 06/30/95 $4,445,600
OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). At October 31, 1995, capital paid-in aggregated $97,601,947. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, -------------------------- 1995 1994(a) - ---------------------------------------------------- ------------ ------------ Shares sold 901,368,780 539,042,342 - ---------------------------------------------------- Shares issued to shareholders in payment of distributions declared 2,529,218 1,065,423 - ---------------------------------------------------- Shares redeemed (891,545,071) (454,858,745) - ---------------------------------------------------- ------------ ------------ Net change resulting from share transactions 12,352,927 85,249,020 - ---------------------------------------------------- ------------ ------------ ------------ ------------
(a) For the period from November 29, 1993 (start of business) to October 31, 1994. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .50 of 1% of the Fund's average 24 NORTH CAROLINA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- daily net assets. The Adviser may voluntarily choose to waive a portion of this fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net assets of the Fund for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ also maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses of $21,879 and start-up administrative service expenses of $31,507 were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organizational expenses and start-up administrative expenses during the five year period following effective date. For the period ended October 31, 1995, the Fund paid $4,254 and $6,126, respectively, pursuant to this agreement. INTERFUND TRANSACTIONS--During the year ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common officers. These transactions were made at current market value pursuant to Rule 17a-7 under the Act amounting to $397,358,800 and $400,650,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 25 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (North Carolina Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of North Carolina Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets and the financial highlights (see page 2 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of North Carolina Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 26 ADDRESSES - -------------------------------------------------------------------------------- North Carolina Municipal Cash Trust Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 - -------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - -------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - --------------------------------------------------------------------------------
27 - -------------------------------------------------------------------------------- NORTH CAROLINA MUNICIPAL CASH TRUST PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 [FEDERATED SECURITIES CORP. LOGO] Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Cusip 314229782 3090803A (12/95) [RECYCLED PAPER LOGO] RECYCLED PAPER NORTH CAROLINA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus of North Carolina Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal Trust (the "Trust") dated December 31, 1995. This Statement is not a prospectus. You may request a copy of the prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-235-4669. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1995 Federated Securities Corp. Distributor A subsidiary of Federated Investors INVESTMENT POLICIES 2 Acceptable Investments 2 Participation Interests 2 Municipal Leases 2 Ratings 3 When-Issued and Delayed Delivery Transactions 4 Repurchase Agreements 4 Reverse Repurchase Agreements 5 Credit Enhancement 5 NORTH CAROLINA INVESTMENT RISKS 6 INVESTMENT LIMITATIONS 7 Regulatory Compliance 11 FEDERATED MUNICIPAL TRUST MANAGEMENT 11 Share Ownership 20 Trustees Compensation 21 Trustee Liability 23 INVESTMENT ADVISORY SERVICES 23 Investment Adviser 23 Advisory Fees 23 BROKERAGE TRANSACTIONS 24 OTHER SERVICES 26 Fund Administration 26 Custodian and Portfolio Recordkeeper 26 Transfer Agent 26 Independent Public Accountants 27 SHAREHOLDER SERVICES AGREEMENT 27 DETERMINING NET ASSET VALUE 27 REDEMPTION IN KIND 28 MASSACHUSETTS PARTNERSHIP LAW 29 THE FUND'S TAX STATUS 29 PERFORMANCE INFORMATION 30 Yield 30 Effective Yield 31 Tax-Equivalent Yield 31 Tax-Equivalency Table 31 Total Return 33 Performance Comparisons 34 ABOUT FEDERATED INVESTORS 34 APPENDIX 36 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security, the issuer of any demand feature applicable to the security, or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Board of Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of non-appropriation"); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1, or 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 rating categories. See "Regulatory Compliance." WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated on the Fund`s records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument in return for a percentage of the instrument's market value in cash and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but does not ensure this result. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are: segregated on the Fund's records at the trade date; marked to market daily; and maintained until the transaction is settled. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the "credit enhancer"), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. NORTH CAROLINA INVESTMENT RISKS The state of North Carolina's credit strength is derived from a diversified and growing economy, relatively low unemployment rates, strong financial management, and a low debt burden. In recent years, the state's economy has become less dependent on agriculture (primarily tobacco) and manufacturing (textiles and furniture) and has experienced increased activity in financial services, research, high-tech manufacturing, and tourism. Although by national standards North Carolina is not one of the wealthier states (89% of national average), it is among the top in the Southeast region and its growth in personal income continues to outstrip national figures. The employment picture in North Carolina remains healthy with unemployment rates significantly below national averages and employment growth rates among the highest in the county. North Carolina is a conservative debt issuer and has consistently maintained extremely low debt levels. Such conservative levels are inherent in the state's financial structure which contains constitutional debt limits. The state's administration continues to demonstrate its ability and willingness to adjust financial planning and budgeting to preserve financial balance. When finances became tight during the recession of the early 1990s, the state quickly responded to shortfalls by increasing its sales and corporate tax rates and implementing expenditure reductions. Since the recession, North Carolina has seen improving state finances and has implemented a series of tax cuts while maintaining to fund capital and budget reserve accounts. The finances of many of North Carolina's municipalities are also very strong. This strength can be partially attributed to the Local Government Commission of North Carolina which serves as a central oversight and consulting group which must approve all debt issued by state municipalities. It is interesting to note that over 25% of all Aaa-rated tax-exempt bonds issued nationwide are issued by local municipalities within the state. The Fund's concentration in securities issued by the state and its political subdivisions provide a greater level of risk than a fund which is diversified across a number of states and municipal entities. The ability of the state or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the state; and the underlying fiscal condition of the state, its counties, and its municipalities. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as may be necessary for clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one- third of the value of its net assets, including the amounts borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of its total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets except that it may acquire publicly or nonpublicly issued North Carolina municipal securities or temporary investments or enter into repurchase agreements in accordance with its investment objective, policies, limitations, and its Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate or real estate limited partnerships, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities, if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above limitations cannot be changed without shareholder approval. The following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its total assets in securities subject to restrictions on resale under federal securities law, except for restricted securities determined to be liquid under criteria established by the Trustees. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers (including companies responsible for paying principal and interest on industrial development bonds) which have records of less than three years of continuous operations, including the operation of any predecessor. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES The Fund will not purchase or retain the securities of any issuer if the Officers and Trustees of the Trust or its investment adviser, owning individually more than .50 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. INVESTING IN MINERALS The Fund will not purchase or sell interests in oil, gas, or other mineral exploration or development programs or leases, although it may purchase the securities of issuers which invest in or sponsor such programs. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund does not intend to borrow money or pledge securities in excess of 5% of the value of its net assets during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments, as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT OFFICERS AND TRUSTEES ARE LISTED WITH THEIR ADDRESSES, BIRTHDATES, PRESENT POSITIONS WITH FEDERATED MUNICIPAL TRUST, AND PRINCIPAL OCCUPATIONS. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President of the Trust . Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds; formerly, Senior Partner, Ernst & Young LLP. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; President, Northgate Village Development Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Director, Trustee, or Managing General Partner of the Funds; formerly, President, Naples Property Management, Inc. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee, or Managing General Partner of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine and Member, Board of Trustees, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director, Trustee, or Managing General Partner of the Funds. Edward L. Flaherty, Jr.@ Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director, Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson * Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. and Federated Administrative Services. Peter E. Madden Seacliff 562 Bellevue Avenue Newport, RI Birthdate: March 16, 1942 Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, Trustee, or Managing General Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation. Gregor F. Meyer Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General Partner of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director, Trustee or Managing General Partner of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics and Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; founding Chairman, National Advisory Council for Environmental Policy and Technology and Federal Emergency Management Advisory Board. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/marketing consultant; Conference Coordinator, Non-profit entities; Director, Trustee, or Managing General Partner of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative Services, Federated Services Company, and Federated Shareholder Services; 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 of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. David M. Taylor Federated Investors Tower Pittsburgh, PA Birthdate: January 13, 1947 Treasurer Senior Vice President, Controller, and Trustee, Federated Investors; Controller, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., and Passport Research, Ltd.; Senior Vice President, Federated Shareholder Services; Vice President, Federated Administrative Services; Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President and Secretary Executive Vice President, Secretary, General Counsel, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds. * This Trustee is deemed to be an "interested person" as defined in the Investment Company Act of 1940. @ Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. As referred to in the list of Trustees and Officers, "Funds" includes the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Master Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5 Years; 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; 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 U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut 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; The Virtus Funds; World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 4, 1995, the following shareholder(s) of record owned 5% or more of the outstanding shares of the North Carolina Municipal Cash Trust: Stephens, Inc., Little Rock, AR, 9.29% and Julius Blum, Inc., Stanley, NC, 12.94%. TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 68 other investment companies in the Fund Complex Thomas G. Bigley $2,458 $20,688 for the Trust and Trustee 49 other investment companies in the Fund Complex John T. Conroy, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex William J. Copeland $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Peter E. Madden $2,757 $90,563 for the Trust and Trustee 64 other investment companies in the Fund Complex Gregor F. Meyer $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex John E. Murray, Jr., $1,762 $0 for the Trust and Trustee 64 other investment companies in the Fund Complex Wesley W. Posvar $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Marjorie P. Smuts $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1995. #The aggregate compensation is provided for the Trust which is comprised of 15 portfolios. +The information is provided for the last calendar year. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal year ended October 31, 1995, and for the period from November 29, 1993 (start of business), to October 31, 1994, the adviser earned $537,013, and $296,066, respectively, of which $433,120, and $261,597, respectively, were waived. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this 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 fees. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Board of Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal year ended October 31, 1995, and for the period from December 31, 1993 (date of initial public investment), to October 31, 1994, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc., also a subsidiary of Federated Investors, served as the Fund's Administrator. (For purposes of this Statement of Additional Information, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the "Administrators.") For the fiscal year ended October 31, 1995, and for the period from November 29, 1993 (start of business), to October 31, 1994, the Administrators earned $125,000 and $52,447, respectively. Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, holds approximately 20% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. CUSTODIAN AND PORTFOLIO RECORDKEEPER State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. TRANSFER AGENT As transfer agent, Federated Services Company maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES AGREEMENT This arrangement permits the payment of fees to Federated Shareholder Services and financial institutions to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balance; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Board of Trustees expects that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal year ending October 31, 1995, the Fund paid Shareholder Services fees in the amount of $268,507. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. The Fund's yield for the seven-day period ended October 31, 1995, was 3.47%. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. The Fund's effective yield for the seven-day period ended October 31, 1995, was 3.52%. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal rate for individuals) and assuming that income is 100% exempt. The Fund's tax-equivalent yield for the seven-day period ended October 31, 1995, was 6.59%. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a "tax-free" investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1995 STATE OF NORTH CAROLINA TAX BRACKET: FEDERAL 15.00% 28.00% 31.00% 31.00% 36.00 39.60% COMBINED FEDERAL AND STATE 22.00% 35.00% 38.00% 38.75% 43.75 47.35% JOIN $1- $39,001- $94,251- $100,001- $143,601- OVER RETURN 39,000 94,250 100,000 143,600 256,500 $256,500 SINGLE $1- $23,351- $56,551- $60,001- $117,951- OVER RETURN 23,350 56,550 60,000 117,950 256,500 $256,500 Tax-Exempt Yield Taxable Yield Equivalent 3.50% 4.49% 5.38% 5.65% 5.71% 6.22% 6.65% 4.00% 5.13% 6.15% 6.45% 6.53% 7.11% 7.60% 4.50% 5.77% 6.92% 7.26% 7.35% 8.00% 8.55% 5.00% 6.41% 7.69% 8.06% 8.16% 8.89% 9.50% 5.50% 7.05% 8.46% 8.87% 8.98% 9.78% 10.45% 6.00% 7.69% 9.23% 9.68% 9.80% 10.67% 11.40% 6.50% 8.33% 10.00% 10.48% 10.61% 11.56% 12.35% 7.00% 8.97% 10.77% 11.29% 11.43% 12.44% 13.30% 7.50% 9.62% 11.54% 12.10% 12.24% 13.33% 14.25% 8.00% 10.26% 12.31% 12.90% 13.06% 14.22% 15.19% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. The Fund's average annual total returns for the one-year period ended October 31, 1995, and for the period from December 31, 1993 (date of initial public investment) through October 31, 1995, were 3.51% and 3.04%, respectively. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: O LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. o MONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1994, Federated Investors managed more than $31 billion in assets across approximately 43 money market funds, including 17 government, 8 prime and 18 municipal with assets approximating $17 billion, $7.4 billion and $6.6 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $2 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. *Source: Investment Company Institute TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity concerns and market access risks unique to notes. SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus sign (+) designation. SP-2 Satisfactory capacity to pay principal and interest. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a variable rate demand feature. The first rating (long-term rating) addresses the likelihood of repayment of principal and interest when due, and the second rating (short-term rating) describes the demand characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. LONG-TERM DEBT RATINGS AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rate "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATINGS Moody's Investor Service, Inc. (Moody's) short-term ratings are designated Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG ratings is to provide investors with a simple system by which the relative investment qualities of short-term obligations may be evaluated. MIG1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad based access to the market for refinancing. MIG2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. In this case, two ratings are usually assigned, (for example, AAA/VMIG-1); the first representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the second representing an evaluation of the degree of risk associated with the demand feature. The VMIG rating can be assigned a 1 or 2 designation using the same definitions described above for the MIG rating. COMMERCIAL PAPER (CP) RATINGS P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well established industries, high rates of return on funds employed, conservative capitalization structure with moderate reliance on debt and ample asset protection, broad margins in earning coverage of fixed financial charges and high internal cash generation, well-established access to a range of financial markets and assured sources of alternate liquidity P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. LONG-TERM DEBT RATINGS AAA Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes is can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long- term risks appear somewhat larger than in AAA securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. NR Indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P or Moody's with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated A-1 or P-1. NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated "AAA" by S&P or "AAA" by Moody's. NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated "AA" by S&P or "AA" by Moody's. NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated "A" by S&P or Moody's. Cusip 314229782 - -------------------------------------------------------------------------------- MARYLAND MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) PROSPECTUS The shares of Maryland Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Maryland municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Maryland, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and the personal income taxes imposed by the State of Maryland and Maryland municipalities consistent with stability of principal and liquidity. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - -------------------------------------------------- FINANCIAL HIGHLIGHTS 2 - -------------------------------------------------- GENERAL INFORMATION 3 - -------------------------------------------------- INVESTMENT INFORMATION 3 - -------------------------------------------------- Investment Objective 3 Investment Policies 3 Maryland Municipal Securities 6 Investment Risks 6 Non-Diversification 7 Investment Limitations 7 FUND INFORMATION 7 - -------------------------------------------------- Management of the Fund 7 Distribution of Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - -------------------------------------------------- HOW TO PURCHASE SHARES 9 - -------------------------------------------------- Special Purchase Features 10 HOW TO REDEEM SHARES 10 - -------------------------------------------------- Special Redemption Features 12 ACCOUNT AND SHARE INFORMATION 12 - -------------------------------------------------- TAX INFORMATION 13 - -------------------------------------------------- Federal Income Tax 13 State and Local Taxes 13 PERFORMANCE INFORMATION 14 - -------------------------------------------------- FINANCIAL STATEMENTS 15 - -------------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 25 - -------------------------------------------------- ADDRESSES 26 - --------------------------------------------------
I SUMMARY OF FUND EXPENSES - --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................... None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)....................................................................... None Redemption Fee (as a percentage of amount redeemed, if applicable)............................... None Exchange Fee..................................................................................... None
ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)................................................................ 0.00% 12b-1 Fee........................................................................................ None Total Other Expenses............................................................................. 0.65% Shareholder Services Fee (after waiver) (2)......................................... 0.24% Total Fund Operating Expenses (3)........................................................ 0.65%
(1) The management fee has been reduced to reflect the voluntary waiver of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The maximum shareholder services fee is 0.25%. (3) The total operating expenses would have been 1.16% absent the voluntary waivers of the management fee and a portion of the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Trust will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ----------------------------------------------------------------- --------- --------- --------- --------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period................................................. $7 $21 $36 $81
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 1 MARYLAND MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 25.
YEAR ENDED OCTOBER 31, ----------------------- 1995 1994(a) - ------------------------------------------------------------------------ ---------- ----------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 - ------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------------------------ Net investment income 0.03 0.01 - ------------------------------------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------------------------------------ Distributions from net investment income (0.03) (0.01) - ------------------------------------------------------------------------ ---------- ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 - ------------------------------------------------------------------------ ---------- ----------- ---------- ----------- TOTAL RETURN (b) 3.36% 1.30% - ------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------ Expenses 0.65% 0.46%* - ------------------------------------------------------------------------ Net investment income 3.30% 2.68%* - ------------------------------------------------------------------------ Expense waiver/reimbursement (c) 0.51% 0.53%* - ------------------------------------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------------------------------------ Net assets, end of period (000 omitted) $51,400 $56,275 - ------------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from May 9, 1994 (date of initial public investment) to October 31, 1994. For the period from April 25, 1994 (start of business) to May 9, 1994, the Fund had no investment activity. (b) Based on net asset value, which does not reflect the sales load or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) 2 GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The Fund is designed for financial institutions acting in an agency or fiduciary capacity as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term Maryland municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Maryland taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the State of Maryland and Maryland municipalities consistent with stability of principal and liquidity. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Maryland municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, the Fund will invest so that at least 80% of the its annual interest income is exempt from federal regular income tax and Maryland state and local income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Maryland and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Maryland state and local income 3 tax ("Maryland Municipal Securities"). Examples of Maryland 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 debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Maryland Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Maryland Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party 4 providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the 5 organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Maryland Municipal Securities is subject to the federal alternative minimum tax. MARYLAND MUNICIPAL SECURITIES Maryland Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Maryland Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Maryland Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Maryland Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Maryland Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Maryland Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Maryland Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Maryland Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Maryland Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of 6 any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge more than 15% of the value of its total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. 7 ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of shares, computed at an annual rate, to obtain certain personal services for shareholders and provide the maintenance of shareholder accounts ("shareholder services"). From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon 8 which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor may pay financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide certain services to shareholders. These services may include, but are not limited to, distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of shares. Any fees paid for these services by the distributor will be reimbursed by the adviser and not the Fund. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS -------------------- ------------------------------------ .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of its shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting total liabilities from total assets and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which on the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more 9 within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Maryland Municipal Cash Trust; Fund Number (this number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to Maryland Municipal Cash Trust. Please include an account number on the check. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined 10 after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor 11 institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the checkwriting program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio, only shares of that portfolio are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only 12 for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Maryland. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. MARYLAND TAXES. Under existing Maryland laws, distributions made by the Fund will not be subject to Maryland state or local income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest on tax-exempt obliga- tions of Maryland or its political subdivisions or authorities; (ii) interest on obligations of the United States or an authority, commission, instrumentality, possession or territory of the United States; or (iii) gain realized by the Fund from the sale or exchange of bonds issued by Maryland, a political 13 subdivision of Maryland, or the United States government (excluding obligations issued by the District of Columbia, a territory or possession of the United States, or a department, agency, instrumentality, or political subdivision of the District, territory or possession). Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to Maryland income taxes. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. 14 MARYLAND MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - -------------- ------------------------------------------------------------ ------- ----------- SHORT-TERM MUNICIPAL SECURITIES--98.6% - ------------------------------------------------------------------------------- MARYLAND--92.0% ------------------------------------------------------------ $1,190,000 Anne Arundel County, MD, 4.00% Bonds, 4/1/1996 AA+ $ 1,191,951 ------------------------------------------------------------ 2,000,000 Anne Arundel County, MD, EDRB (Series 1988), 3.80% CP (Baltimore Gas & Electric Co.), Mandatory Tender 11/16/1995 A-1 2,000,000 ------------------------------------------------------------ 2,000,000 Anne Arundel County, MD, EDRB (Series 1988), 3.90% CP (Baltimore Gas & Electric Co.), Mandatory Tender 1/16/1996 A-1 2,000,000 ------------------------------------------------------------ 2,000,000 Anne Arundel County, MD, EDRB (Series 1988), 3.90% CP (Baltimore Gas & Electric Co.), Mandatory Tender 12/13/1995 A-1 2,000,000 ------------------------------------------------------------ 2,475,000 Baltimore County, MD IDA, (Series 1994A) Weekly VRDNs (Pitts Realty Limited Partnership)/(PNC Bank, NA, Delaware LOC) P-1 2,475,000 ------------------------------------------------------------ 1,900,000 Baltimore County, MD Metropolitan District, Special Assessment Bonds-63rd Issue, 5.70% Bonds, 7/1/1996 Aaa 1,922,883 ------------------------------------------------------------ 3,000,000 (a) Baltimore County, MD, Puttable T-E Rec, Series 20, Der Inverse T-E Rec (Series-20) Weekly VRDNs (Morgan Guaranty Trust Co., New York LIQ) VMIG1 3,000,000 ------------------------------------------------------------ 2,700,000 Baltimore County, MD, Revenue Bonds (1994 Issue) Weekly VRDNs (Direct Marketing Associates, Inc. Facility)/(First National Bank of Maryland, Baltimore LOC) A-1 2,700,000 ------------------------------------------------------------ 500,000 Baltimore, MD PCR Weekly VRDNs (SCM Plants, Inc.)/(Barclays Bank PLC, London LOC) A-1+ 500,000 ------------------------------------------------------------ 2,000,000 Baltimore, MD, (Series 1988) Weekly VRDNs (Cherill Associated Facility)/(Nationsbank of Maryland, N.A. LOC) P-1 2,000,000 ------------------------------------------------------------ 1,500,000 Cecil County, MD, County Commissioners EDRB (Series 1988S) Weekly VRDNs (Williams Mobile Offices, Inc.)/(First National Bank of Maryland, Baltimore LOC) A-1 1,500,000 ------------------------------------------------------------
15 MARYLAND MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - -------------- ------------------------------------------------------------ ------- ----------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------- MARYLAND--CONTINUED ------------------------------------------------------------ $ 995,000 Elkton, MD, Revenue Refunding Bonds (Series 1992) Weekly VRDNs (Highway Service Ventures, Inc. Facility)/(First Union National Bank, Charlotte, NC LOC) A-1 $ 995,000 ------------------------------------------------------------ 3,141,000 Hartford County, MD, (Series 1989) Weekly VRDNs (Hartford Commons Associates Facility)/(Nationsbank of Virginia, N.A. LOC) P-1 3,141,000 ------------------------------------------------------------ 2,000,000 Maryland EDC, Pooled Financing Revenue Bonds, (Series 1995) Weekly VRDNs (Maryland Municipal Bond Fund)/(Nationsbank of Maryland, N.A. LOC) A-1 2,000,000 ------------------------------------------------------------ 500,000 Maryland Health & Higher Educational Facilities Authority, (Series 1985B) Weekly VRDNs (First National Bank of Chicago LOC) VMIG1 500,000 ------------------------------------------------------------ 1,900,000 Maryland Health & Higher Educational Facilities Authority, ACESsm Revenue Bonds (Series 1994) Weekly VRDNs (Daughters of Charity) VMIG1 1,900,000 ------------------------------------------------------------ 1,000,000 Maryland Health & Higher Educational Facilities Authority, Revenue Bonds (Series 1992B) Weekly VRDNs (North Arundel Hospital)/(Mellon Bank NA, Pittsburgh LOC) VMIG1 1,000,000 ------------------------------------------------------------ 2,000,000 Maryland State Energy Financing Administration, Annual Tender Solid Waste Disposal Revenue Refunding Bonds, 4.30% TOBs (Nevamar Corp.)/(International Paper Co. GTD), Optional Tender 9/1/1996 A- 2,000,000 ------------------------------------------------------------ 2,400,000 Maryland State IDFA Kelly Springfield Tire, Economic Development Revenue Refunding Bonds (Series 1994) Weekly VRDNs (Johnson Controls, Inc.) VMIG1 2,400,000 ------------------------------------------------------------ 2,000,000 Montgomery County, MD EDA Weekly VRDNs (Howard Hughes Medical Center) A-1+ 2,000,000 ------------------------------------------------------------ 1,500,000 Montgomery County, MD EDA Weekly VRDNs (U.S. Pharmacopeial Convention Facility)/(Chemical Bank, New York LOC) VMIG1 1,500,000 ------------------------------------------------------------
16 MARYLAND MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - -------------- ------------------------------------------------------------ ------- ----------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------- MARYLAND--CONTINUED ------------------------------------------------------------ $2,000,000 Montgomery County, MD, Multifamily Housing Revenue Bonds 1991 (Issue A) Weekly VRDNs (South Bay Club Apartments -- Van Nuys, G.P.)/(General Electric Capital Corp. LOC) A-1+ $ 2,000,000 ------------------------------------------------------------ 2,000,000 Montgomery County, MD, Unlimited GO's, 9.20% Bonds, 6/1/1996 NR(1) 2,061,727 ------------------------------------------------------------ 1,100,000 Prince George's County, MD, IDRB (Series 1993), 4.00% TOBs (International Paper Co.), Optional Tender 7/15/1996 A- 1,100,000 ------------------------------------------------------------ 1,135,000 Washington Suburban Sanitary District, MD, General Construction GO Bonds, 4.50% Bonds, 6/1/1996 Aa1 1,140,119 ------------------------------------------------------------ 2,260,000 Wicomico County, MD, EDRB (Series 1994) Weekly VRDNs (Field Container Co. L.P.)/(Northern Trust Co., Chicago, IL LOC) A-1+ 2,260,000 ------------------------------------------------------------ ----------- Total 47,287,680 ------------------------------------------------------------ ----------- PUERTO RICO--2.7% ------------------------------------------------------------ 1,400,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1983A), 3.75% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank N.V., Amsterdam LOC), Optional Tender 9/1/1996 A-1+ 1,400,000 ------------------------------------------------------------ ----------- VIRGIN ISLANDS--3.9% ------------------------------------------------------------ 2,000,000 Virgin Islands HFA, Single Family Mortgage Revenue Refunding Bonds (1995 Series B), 4.375% TOBs (FGIC INS), Optional Tender 2/1/1996 A-1+ 2,000,000 ------------------------------------------------------------ ----------- TOTAL SHORT TERM MUNICIPAL SECURITIES (AT AMORTIZED COST)(b) $50,687,680 ------------------------------------------------------------ ----------- -----------
Securities that are subject to Alternative Minimum Tax represent 47.5% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. These securities have been determined to be liquid under criteria established by the Board of Trustees. At the end of the period, these securities amounted to $3,000,000 which represents 5.8% of net assets. (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($51,400,194) at October 31, 1995. 17 MARYLAND MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronyms are used throughout this portfolio: ACES --Adjustable Convertible Extendible Securities CP --Commercial Paper EDA --Economic Development Authority EDC --Economic Development Commission EDRB --Economic Development Revenue Bonds FGIC --Financial Guaranty Insurance Company GO --General Obligation GTD --Guaranty HFA --Housing Finance Authority IDA --Industrial Development Authority IDFA --Industrial Development Finance Authority IDRB --Industrial Development Revenue Bonds INS --Insured LIQ --Liquidity Agreement LOC --Letter of Credit PCA --Pollution Control Authority PCR --Pollution Control Revenue PLC --Public Limited Company TOBs --Tender Option Bonds VRDNs --Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) 18 MARYLAND MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------- Investments in securities, at amortized cost and value $50,687,680 - ------------------------------------------------------------------- Cash 281,048 - ------------------------------------------------------------------- Income receivable 445,550 - ------------------------------------------------------------------- Deferred expenses 30,035 - ------------------------------------------------------------------- ----------- Total assets 51,444,313 - ------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------- Payable for shares redeemed $ 501 - ---------------------------------------------------------- Income distribution payable 10,391 - ---------------------------------------------------------- Accrued expenses 33,227 - ---------------------------------------------------------- ------- Total liabilities 44,119 - ------------------------------------------------------------------- ----------- NET ASSETS for 51,400,194 shares outstanding $51,400,194 - ------------------------------------------------------------------- ----------- ----------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------- $51,400,194 DIVIDED BY 51,400,194 shares outstanding $ 1.00 - ------------------------------------------------------------------- ----------- -----------
(See Notes which are an integral part of the Financial Statements) 19 MARYLAND MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - -------------------------------------------------------------------- Interest $2,338,974 - -------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------- Investment advisory fee $ 296,327 - -------------------------------------------------------- Administrative personnel and services fee 125,000 - -------------------------------------------------------- Custodian fees 27,900 - -------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 13,996 - -------------------------------------------------------- Directors'/Trustees' fees 538 - -------------------------------------------------------- Auditing fees 9,750 - -------------------------------------------------------- Legal fees 263 - -------------------------------------------------------- Portfolio accounting fees 31,285 - -------------------------------------------------------- Shareholder services fee 148,133 - -------------------------------------------------------- Share registration costs 11,607 - -------------------------------------------------------- Printing and postage 12,082 - -------------------------------------------------------- Insurance premiums 4,047 - -------------------------------------------------------- Miscellaneous 4,673 - -------------------------------------------------------- ---------- Total expenses 685,601 - -------------------------------------------------------- Waivers-- - --------------------------------------------- Waiver of investment advisory fee $(295,202) - --------------------------------------------- Waiver of shareholder services fee (4,024) - --------------------------------------------- --------- Total waivers (299,226) - -------------------------------------------------------- ---------- Net expenses 386,375 - -------------------------------------------------------------------- ---------- Net investment income $1,952,599 - -------------------------------------------------------------------- ---------- ----------
(See Notes which are an integral part of the Financial Statements) 20 MARYLAND MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED OCTOBER 31, 1995 OCTOBER 31, 1994* ---------------- ----------------- INCREASE (DECREASE) IN NET ASSETS: - -------------------------------------------------------- OPERATIONS-- - -------------------------------------------------------- Net investment income $ 1,952,599 $ 735,164 - -------------------------------------------------------- ---------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS-- - -------------------------------------------------------- Distributions from net investment income (1,952,599) (735,164) - -------------------------------------------------------- ---------------- ----------------- SHARE TRANSACTIONS-- - -------------------------------------------------------- Proceeds from sale of shares 180,327,160 231,266,672 - -------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 1,800,625 596,061 - -------------------------------------------------------- Cost of shares redeemed (187,002,830) (175,587,494) - -------------------------------------------------------- ---------------- ----------------- Change in net assets resulting from share transactions (4,875,045) 56,275,239 - -------------------------------------------------------- ---------------- ----------------- Change in net assets (4,875,045) 56,275,239 - -------------------------------------------------------- NET ASSETS: - -------------------------------------------------------- Beginning of period 56,275,239 0 - -------------------------------------------------------- ---------------- ----------------- End of period $ 51,400,194 $ 56,275,239 - -------------------------------------------------------- ---------------- ----------------- ---------------- -----------------
* For the period from April 25, 1994 (start of business) to October 31, 1994. (See Notes which are an integral part of the Financial Statements) 21 MARYLAND MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Maryland Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 55.2% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or supported (backed) by a letter of credit for any one institution or agency does not exceed 8.3% of total investments. 22 MARYLAND MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Trust will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1995 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST -------------------------------------------------- ---------------- ---------------- Baltimore County, Md, Puttable T-E Rec, Series 20 August 11, 1994 $3,000,000
DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). At October 31, 1995, capital paid-in aggregated $51,400,194. Transactions in shares were as follows:
YEAR ENDED PERIOD ENDED OCTOBER 31, 1995 OCTOBER 31, 1994(a) - --------------------------------------------- ---------------- -------------------- Shares sold 180,327,160 231,266,672 - --------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,800,625 596,061 - --------------------------------------------- Shares redeemed (187,002,830) (175,587,494) - --------------------------------------------- ---------------- -------------------- Net change resulting from share transactions (4,875,045) 56,275,239 - --------------------------------------------- ---------------- -------------------- ---------------- --------------------
(a) For the period from April 25, 1994 (start of business) to October 31, 1994. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .50 of 1% of the Fund's average 23 MARYLAND MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS,") the Fund will pay FSS up to .25 of 1% of daily average net assets of the Trust for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ also maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses of $14,426 and start-up administrative service expenses of $31,506 were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organizational expenses and start-up administrative expenses during the five year period following effective date. For the period ended October 31, 1995, the Fund paid $1,523 and $3,326, respectively, pursuant to this agreement INTERFUND TRANSACTIONS--During the period ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common Officers. These transactions were made at current market value pursuant to Rule 17a-7 under the Act amounting to $151,635,000 and $168,035,000 respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors of the above companies. 24 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Maryland Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Maryland Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets and the financial highlights (see page 2 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Maryland Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 25 ADDRESSES - -------------------------------------------------------------------------------- Maryland Municipal Cash Trust Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 - -------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - -------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Plaza Pittsburgh, PA 15222 - --------------------------------------------------------------------------------
26 - -------------------------------------------------------------------------------- MARYLAND MUNICIPAL CASH TRUST PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 [FEDERATED SECURITIES CORP. LOGO] Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Cusip 314229774 G00105-01-A (12/95) [RECYCLED PAPER LOGO] RECYCLED MARYLAND MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus of Maryland Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal Trust (the "Trust") dated December 31, 1995. This Statement is not a prospectus. You may request a copy of the prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-235-4669. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1995 FEDERATED SECURITIES CORP. Distributor A subsidiary of Federated Investors INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 2 When-Issued and Delayed Delivery Transactions 3 Repurchase Agreements 3 Reverse Repurchase Agreements 3 Credit Enhancement 4 MARYLAND INVESTMENT RISKS 4 INVESTMENT LIMITATIONS 6 Regulatory Compliance 9 FEDERATED MUNICIPAL TRUST MANAGEMENT 9 Share Ownership 18 Trustees Compensation 18 Trustee Liability 20 INVESTMENT ADVISORY SERVICES 20 Investment Adviser 20 Advisory Fees 20 BROKERAGE TRANSACTIONS 21 OTHER SERVICES 22 Fund Administration 22 Custodian and Portfolio Recordkeeper 23 Transfer Agent 23 Independent Public Accountants 23 SHAREHOLDER SERVICES AGREEMENT 23 DETERMINING NET ASSET VALUE 24 REDEMPTION IN KIND 25 MASSACHUSETTS PARTNERSHIP LAW 25 THE FUND'S TAX STATUS 26 PERFORMANCE INFORMATION 26 Yield 26 Effective Yield 27 Tax-Equivalent Yield 27 Tax-Equivalency Table 27 Total Return 29 Performance Comparisons 30 ABOUT FEDERATED INVESTORS 30 APPENDIX 32 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security, the issuer of any demand feature applicable to the security, or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Board of Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of non-appropriation"); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1, or 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 rating categories. See "Regulatory Compliance." WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated on the Fund`s records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument in return for a percentage of the instrument's market value in cash and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but does not ensure this result. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are: segregated on the Fund's records at the trade date; marked to market daily; and maintained until the transaction is settled. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit-enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the "credit enhancer"), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. MARYLAND INVESTMENT RISKS The state of Maryland's economy differs from that of the nation, with a heavier dependence on government, services (particularly business, engineering, and management services), and trade than the typical state and less reliance on manufacturing. The state's economic structure reflects its proximity to Washington D.C. with one-tenth of civilian wages paid in the state coming from federal agencies located in Maryland and 10% of Maryland's personal income originating from jobs in the District of Columbia. Although this structure adds a degree of concentration risk, the wages earned by Maryland's federal workers also contributes to the state's above average income and below average unemployment figures. In 1993, Maryland's per capita personal income was the fifth highest in the nation. Although the Maryland economy is rebounding from the recession in the early 1990s, the pace of job growth has trailed that of the nation. This weakness is expected to continue and is largely attributable to the recent restructuring within the government and defense-related industries. State finances are well-managed with strong administrative control exercised by the State Board of Public Works, which is comprised of the governor, the treasurer, and the controller. The revenue stream is well diversified relying heavily on sales, income and a variety of other taxes (including a state property tax). The finances of the state have improved significantly since the recession in the early 1990s. The state went from a significant deficit position in 1992 to a healthy surplus in both 1994 and 1995. Although Maryland remains one of the nations more indebted states, it has restrained borrowings in recent years resulting in a more modest debt burden. Maryland relies on its Debt Affordability Committee to formulate annual guidelines for prudent debt issuance. For fiscal year 1996, the state legislature mandated that the state fund a State Reserve Fund and a revenue stabilization account. These funds should provide an additional cushion in the case of future financial hardships. The Fund's concentration in securities issued by the state and its political subdivisions provide a greater level of risk than a fund which is diversified across a number of states and municipal entities. The ability of the state or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the state; and the underlying fiscal condition of the state, its counties, and its municipalities. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as may be necessary for clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one-third of the value of its net assets, including the amounts borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of the value of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of its total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may acquire publicly or nonpublicly issued Maryland municipal securities or temporary investments or enter into repurchase agreements in accordance with its investment objective, policies, and limitations, and its Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate or real estate limited partnerships, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities, if as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above limitations cannot be changed without shareholder approval. The following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its total assets in securities subject to restrictions on resale under federal securities law, except for restricted securities determined to be liquid under criteria established by the Trustees. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers (including companies responsible for paying principal and interest on industrial development bonds) which have records of less than three years of continuous operations, including the operation of any predecessor. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES The Fund will not purchase or retain the securities of any issuer if the Officers and Trustees of the Trust or its investment adviser, owning individually more than .50 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. INVESTING IN MINERALS The Fund will not purchase or sell interests in oil, gas, or other mineral exploration or development programs or leases, although it may purchase the securities of issuers which invest in or sponsor such programs. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings associations having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments, as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT OFFICERS AND TRUSTEES ARE LISTED WITH THEIR ADDRESSES, BIRTHDATES, PRESENT POSITIONS WITH FEDERATED MUNICIPAL TRUST, AND PRINCIPAL OCCUPATIONS. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President of the Trust . Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds; formerly, Senior Partner, Ernst & Young LLP. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; President, Northgate Village Development Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Director, Trustee, or Managing General Partner of the Funds; formerly, President, Naples Property Management, Inc. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee, or Managing General Partner of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine and Member, Board of Trustees, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director, Trustee, or Managing General Partner of the Funds. Edward L. Flaherty, Jr.@ Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director, Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson * Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. and Federated Administrative Services. Peter E. Madden Seacliff 562 Bellevue Avenue Newport, RI Birthdate: March 16, 1942 Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, Trustee, or Managing General Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation. Gregor F. Meyer Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General Partner of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director, Trustee or Managing General Partner of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics and Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; founding Chairman, National Advisory Council for Environmental Policy and Technology and Federal Emergency Management Advisory Board. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/marketing consultant; Conference Coordinator, Non-profit entities; Director, Trustee, or Managing General Partner of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative Services, Federated Services Company, and Federated Shareholder Services; 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 of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. David M. Taylor Federated Investors Tower Pittsburgh, PA Birthdate: January 13, 1947 Treasurer Senior Vice President, Controller, and Trustee, Federated Investors; Controller, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., and Passport Research, Ltd.; Senior Vice President, Federated Shareholder Services; Vice President, Federated Administrative Services; Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President and Secretary Executive Vice President, Secretary, General Counsel, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds. * This Trustee is deemed to be an "interested person" as defined in the Investment Company Act of 1940. @ Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. As referred to in the list of Trustees and Officers, "Funds" includes the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Master Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5 Years; 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; 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 U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut 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; The Virtus Funds; World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 4, 1995, the following shareholders of record owned 5% or more of the outstanding shares of the Maryland Municipal Cash Trust: United Communications Group, Rockville, MD, 14.25%; Charles Bresler, Washington, D.C., 14.56%; and James G. Robinson, Baltimore, MD, 16.97%. TRUSTEES COMPENSATION
AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 68 other investment companies in the Fund Complex Thomas G. Bigley $2,458 $20,688 for the Trust and Trustee 49 other investment companies in the Fund Complex John T. Conroy, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex William J. Copeland $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Peter E. Madden $2,757 $90,563 for the Trust and Trustee 64 other investment companies in the Fund Complex Gregor F. Meyer $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex John E. Murray, Jr., $1,762 $0 for the Trust and Trustee 64 other investment companies in the Fund Complex Wesley W. Posvar $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Marjorie P. Smuts $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex
*Information is furnished for the fiscal year ended October 31, 1995. #The aggregate compensation is provided for the Trust which is comprised of 15 portfolios. +The information is provided for the last calendar year. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal year ended October 31, 1995, and for the period from April 25, 1994 (start of business), to October 31, 1994, the adviser earned $296,327, and $137,219, respectively, of which $295,202, and $137,147, respectively, were waived. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this 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 fees. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Board of Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal year ended October 31, 1995, and for the period from May 9, 1994 (date of initial public investment), to October 31, 1994, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc., also a subsidiary of Federated Investors, served as the Fund's Administrator. (For purposes of this Statement of Additional Information, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the "Administrators.") For the fiscal year ended October 31, 1995, and for the period from April 25, 1994 (start of business), to October 31, 1994, the Administrators earned $125,000, and $20,890, respectively. Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, holds approximately 20% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. CUSTODIAN AND PORTFOLIO RECORDKEEPER State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. TRANSFER AGENT As transfer agent, Federated Services Company maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES AGREEMENT This arrangement permits the payment of fees to Federated Shareholder Services and financial institutions to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balance; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Board of Trustees expects that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal year ending October 31, 1995, the Fund paid Shareholder Services fees in the amount of $148,133, of which $4,024 was waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. The Fund's yield for the seven-day period ended October 31, 1995, was 3.35%. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. The Fund's effective yield for the seven-day period ended October 31, 1995, was 3.41%. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal rate for individuals) and assuming that income is 100% exempt. The Fund's tax-equivalent yield for the seven-day period ended October 31, 1995, was 5.55%. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a "tax-free" investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1995 STATE OF MARYLAND INCLUDING LOCAL INCOME TAX COMBINED FEDERAL, STATE, AND COUNTY INCOME TAX BRACKET: 22.50% 35.50% 38.50% 40.00% 45.00% 48.60% SINGLE $1- $23,351- $56,551- $100,001- $117,951- OVER RETURN 23,350 56,550 100,000 117,950 256,500 256,500 Tax-Exempt Yield Taxable Yield Equivalent 2.00% 2.58% 3.10% 3.25% 3.33% 3.64% 3.89% 2.50% 3.23% 3.88% 4.07% 4.17% 4.55% 4.86% 3.00% 3.87% 4.65% 4.88% 5.00% 5.45% 5.84% 3.50% 4.52% 5.43% 5.69% 5.83% 6.36% 6.81% 4.00% 5.16% 6.20% 6.50% 6.67% 7.27% 7.78% 4.50% 5.81% 6.98% 7.32% 7.50% 8.18% 8.75% 5.00% 6.45% 7.75% 8.13% 8.33% 9.09% 9.73% 5.50% 7.10% 8.53% 8.94% 9.17% 10.00% 10.70% 6.00% 7.74% 9.30% 9.76% 10.00% 10.91% 11.67% 6.50% 8.39% 10.08% 10.57% 10.83% 11.82% 12.65% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The local income tax rate is assumed to be 50% of the state rate for all counties excluding Alleghany, Baltimore, Montgomery, Prince George's, Talbot and Worcester. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of Fund shares. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local income taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. The Fund's average annual total returns for the one-year period ended October 31, 1995, and for the period from May 9, 1994 (date of initial public investment), through October 31, 1995, were 3.36% and 3.16%, respectively. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: O LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. o MONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1994, Federated Investors managed more than $31 billion in assets across approximately 43 money market funds, including 17 government, 8 prime and 18 municipal with assets approximating $17 billion, $7.4 billion and $6.6 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $2 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. *Source: Investment Company Institute TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity concerns and market access risks unique to notes. SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus sign (+) designation. SP-2 Satisfactory capacity to pay principal and interest. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a variable rate demand feature. The first rating (long-term rating) addresses the likelihood of repayment of principal and interest when due, and the second rating (short-term rating) describes the demand characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long- term and the short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. LONG-TERM DEBT RATINGS AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rate "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATINGS Moody's Investor Service, Inc. (Moody's) short-term ratings are designated Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG ratings is to provide investors with a simple system by which the relative investment qualities of short-term obligations may be evaluated. MIG1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad based access to the market for refinancing. MIG2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. In this case, two ratings are usually assigned, (for example, AAA/VMIG-1); the first representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the second representing an evaluation of the degree of risk associated with the demand feature. The VMIG rating can be assigned a 1 or 2 designation using the same definitions described above for the MIG rating. COMMERCIAL PAPER (CP) RATINGS P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well established industries, high rates of return on funds employed, conservative capitalization structure with moderate reliance on debt and ample asset protection, broad margins in earning coverage of fixed financial charges and high internal cash generation, well-established access to a range of financial markets and assured sources of alternate liquidity P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. LONG-TERM DEBT RATINGS AAA Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes is can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in AAA securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. NR Indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P or Moody's with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated A-1 or P-1. NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated "AAA" by S&P or "AAA" by Moody's. NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated "AA" by S&P or "AA" by Moody's. NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated "A" by S&P or Moody's. Cusip 314229774 CALIFORNIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) PROSPECTUS The shares of California Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term California municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of California, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and the personal income taxes imposed by the State of California consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 California Municipal Securities 5 Investment Risks 6 Non-Diversification 6 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ Special Purchases Features 10 HOW TO REDEEM SHARES 10 - ------------------------------------------------------ Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 12 - ------------------------------------------------------ TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 State and Local Taxes 13 PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL STATEMENTS 15 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 27 - ------------------------------------------------------ ADDRESSES 28 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)........................................ None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)........................................ None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)...................... None Redemption Fee (as a percentage of amount redeemed, if applicable)........... None Exchange Fee................................................................. None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)............................................. 0.07% 12b-1 Fee.................................................................... None Total Other Expenses......................................................... 0.52% Shareholder Services Fee (after waiver)(2)......................... 0.18% Total Operating Expenses(3)............................................. 0.59%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The maximum shareholder services fee is 0.25%. (3) The total operating expenses would have been 1.09% absent the voluntary waivers of a portion of the management fee and the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ---------------------------------------------------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period......... $6 $19 $33 $ 74
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. CALIFORNIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 27.
YEAR ENDED PERIOD ENDED YEAR ENDED SEPTEMBER 30, OCTOBER 31, OCTOBER 31, -------------------------------------------------------- 1995 1994(A) 1994 1993 1992 1991 1990 1989(B) ----------- ------------- ----- ----- ----- ----- ----- ------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 - -------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------- Net investment income 0.03 0.002 0.02 0.02 0.03 0.04 0.05 0.03 - -------------------------------- Net realized loss on investments (0.01) -- -- -- -- -- -- -- - -------------------------------- ------- -------- ---- ---- ---- ---- ---- ----- Total from investment operations 0.02 0.002 0.02 0.02 0.03 0.04 0.05 0.03 - -------------------------------- ------- -------- ---- ---- ---- ---- ---- ----- CAPITAL CONTRIBUTION 0.01 -- -- -- -- -- -- -- - -------------------------------- ------- -------- ---- ---- ---- ---- ---- ----- LESS DISTRIBUTIONS - -------------------------------- Distributions from net investment income (0.03) (0.002) (0.02) (0.02) (0.03) (0.04) (0.05) (0.03) - -------------------------------- ------- --------- ---- ---- ---- ---- ---- ----- NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 - -------------------------------- ------- -------- ---- ---- ---- ---- ---- ----- TOTAL RETURN (C) 3.37% 0.23% 2.07% 2.03% 2.83% 4.30% 5.38% 2.95% - -------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------- Expenses 0.59% 0.59%* 0.58% 0.54% 0.45% 0.35% 0.38% 0.40%* - -------------------------------- Net investment income 3.33% 2.71%* 2.03% 2.00% 2.76% 4.19% 5.27% 5.86%* - -------------------------------- Expense waiver/ reimbursement (d) 0.50% 0.44%* 0.40% 0.35% 0.58% 0.75% 0.86% 0.89%* - -------------------------------- SUPPLEMENTAL DATA - -------------------------------- Net assets, end of period (000 omitted) $96,534 $81,563 $74,707 $104,322 $59,709 $56,754 $50,391 $36,628 - --------------------------------
* Computed on an annualized basis. (a) For the one month ended October 31, 1994. The Fund changed its fiscal year-end from September 30, to October 31, beginning September 30, 1994. (b) Reflects operations for the period from March 15, 1989 (date of initial public offering) to September 30, 1989. (c) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (d) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The Fund is designed for banks and other institutions that hold assets for individuals, trusts, estates, or partnerships as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term California municipal securities. The Fund may not be a suitable investment for retirement plans or for non-California taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the State of California consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of California municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and California state income tax (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of California and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and California state income tax imposed upon non-corporate taxpayers ("California Municipal Securities"). Examples of California Municipal Securities include, but are not limited to: - tax and revenue anticipation notes ("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 debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in California Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying California Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain California Municipal Securities is subject to the federal alternative minimum tax. CALIFORNIA MUNICIPAL SECURITIES California Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. California Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of California Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on California Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of California Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of California Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in California Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these California Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of California Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of those assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of Fund shares, computed at an annual rate, to obtain certain personal services for shareholders and provide maintenance of shareholder accounts ("shareholder services"). From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor may pay financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide certain services to shareholders. These services may include, but are not limited to, distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of shares. Any fees paid for these services by the distributor will be reimbursed by the adviser and not the Fund. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting ser- vices) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS ----------- ----------------- .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of its shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting total liabilities from total assets and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 9:00 a.m., (Pacific time) (12:00 noon Eastern time), 10:00 a.m. Pacific time (1:00 p.m. Eastern time), and as of the close of trading (normally 1:00 p.m. Pacific time or 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $25,000 or more within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 10:00 p.m. Pacific time (1:00 p.m. Eastern time). The order is considered received immediately. Payment by federal funds must be received before 12:00 noon Pacific time (3:00 p.m. Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: California Municipal Cash Trust ; Fund Number (This number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to California Municipal Cash Trust. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 9:00 a.m. Pacific time (12:00 noon Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 11:00 a.m. Pacific time (2 p.m. Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares" By Mail should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio, only shares of that portfolio are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than California. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. CALIFORNIA TAXES. Under existing California laws, distributions made by the Fund will not be subject to California individual income taxes to the extent that such distributions qualify as exempt-interest dividends under the California Revenue and Taxation Code, so long as at the close of each quarter, at least 50 percent of the value of the total assets of the Fund consists of obligations the interest on which is exempt from California taxation under either the Constitution or laws of California or the Constitution or laws of the United States. The Fund will furnish its shareholders with a written note designating exempt-interest dividends within 60 days after the close of its taxable year. Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to California individual income taxes. Dividends of the Fund are not exempt from the California taxes payable by corporations. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. CALIFORNIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ---------- -------------------------------------------------------- -------- ----------- SHORT-TERM MUNICIPALS--99.3% - ------------------------------------------------------------------------ CALIFORNIA--95.2% -------------------------------------------------------- $1,100,000 California Health Facilities Financing Authority Weekly VRDNs (FGIC INS)/(Morgan Guaranty Trust Co., New York LIQ) VMIG1 $ 1,100,000 -------------------------------------------------------- 100,000 California Health Facilities Financing Authority Weekly VRDNs (Santa Barbara Hospital)/(Credit Suisse, Zurich LOC) VMIG1 100,000 -------------------------------------------------------- 2,400,000 California Health Facilities Financing Authority, (Series B) Daily VRDNs (Sutter Health)/(Morgan Guaranty Trust Co., New York LOC) VMIG1 2,400,000 -------------------------------------------------------- 3,000,000 California PCFA, (Series 1988E), 3.75% CP (Pacific Gas & Electric Co.)/(Morgan Guaranty Trust Co., New York LOC), Mandatory Tender 1/10/1996 A-1+ 3,000,000 -------------------------------------------------------- 4,400,000 California PCFA, (Series 1991) Weekly VRDNs (North County, CA Recycling & Energy Recovery)/(Union Bank of Switzerland, Zurich LOC) A-1+ 4,400,000 -------------------------------------------------------- 1,000,000 California State, 8.50%, 11/1/1995 NR(3) 1,000,000 -------------------------------------------------------- 5,000,000 California State, Revenue Anticipation Warrants (Series C), 5.75% RANs (Bank of America NT and SA, San Francisco, Bank of Nova Scotia, Toronto, Banque Nationale de Paris, Canadian Imperial Bank of Commerce, Toronto, Chemical Bank, New York, Citibank NA, New York, Credit Suisse, Zurich, Morgan Guaranty Trust Co., New York, National Westminster Bank, PLC, London, Societe Generale North America, Inc., Sumitomo Bank Ltd., Osaka, Swiss Bank Corp., Basle, Toronto-Dominion Bank and Westdeutsche Landesbank Girozentrale LOCs), 4/25/1996 SP-1 5,021,142 -------------------------------------------------------- 4,200,000 California Statewide Communities Development Authority, (Series A) Weekly VRDNs (Barton Memorial Hospital)/ (Banque Nationale de Paris LOC) VMIG1 4,200,000 -------------------------------------------------------- 4,000,000 Central Unified School District, CA, Variable Rate Certificates of Participation (1995 Financing Project) Weekly VRDNs (Bank of California N.A. LOC) VMIG1 4,000,000 --------------------------------------------------------
CALIFORNIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ---------- -------------------------------------------------------- -------- ----------- SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------ CALIFORNIA--CONTINUED -------------------------------------------------------- $ 100,000 Kern County, CA Public Facility Corp. Weekly VRDNs (Union Bank of Switzerland, Zurich LOC) VMIG1 $ 100,000 -------------------------------------------------------- 1,300,000 Kern County, CA Public Facility Corp. Weekly VRDNs (Union Bank of Switzerland, Zurich LOC) VMIG1 1,300,000 -------------------------------------------------------- 1,000,000 Livermore Valley, CA USD, TRANs (Series 1995-96), 4.75%, 9/19/1996 MIG1 1,005,930 -------------------------------------------------------- 5,000,000 Long Beach, CA Housing Authority, (1995 Series A) Weekly VRDNs (Channel Point Apartments)/(Union Bank, San Francisco LOC) VMIG1 5,000,000 -------------------------------------------------------- 1,000,000 Los Angeles County, CA Metropolitan Transportation Authority, 3.80% CP (ABN AMRO Bank N.V., Amsterdam, Bank of California N.A., Banque Nationale de Paris, Canadian Imperial Bank of Commerce, Toronto and National Westminster Bank, PLC, London LOCs), Mandatory Tender 12/21/1995 P-1 1,000,000 -------------------------------------------------------- 3,000,000 Los Angeles County, CA Metropolitan Transportation Authority, 3.85% CP (ABN AMRO Bank N.V., Amsterdam, Bank of California N.A., Banque Nationale de Paris, Canadian Imperial Bank of Commerce, Toronto and National Westminster Bank, PLC, London LOCs), Mandatory Tender 11/16/1995 P-1 3,000,000 -------------------------------------------------------- 4,500,000 Los Angeles County, CA Metropolitan Transportation Authority, General Revenue Bonds, (Series 1995-A) Weekly VRDNs (Union Station Gateway Project)/(FSA INS)/ (Societe Generale, Paris LIQ) A-1+ 4,500,000 -------------------------------------------------------- 2,400,000 Los Angeles, CA Wastewater System, 3.75% CP, Mandatory Tender 12/12/1995 P-1 2,400,000 -------------------------------------------------------- 2,000,000 Los Angeles, CA Wastewater System, 3.85% CP, Mandatory Tender 2/21/1996 P-1 2,000,000 -------------------------------------------------------- 3,000,000 (a) Los Angeles, CA Wastewater System, Tender Option Certificates, (Series 1995D) Weekly VRDNs (MBIA Insurance Corporation INS)/(Canadian Imperial Bank of Commerce, Toronto LIQ) A-1+ 3,000,000 --------------------------------------------------------
CALIFORNIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ---------- -------------------------------------------------------- -------- ----------- SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------ CALIFORNIA--CONTINUED -------------------------------------------------------- $2,000,000 Monterey Peninsula, CA Water Management District Weekly VRDNs (Wastewater Reclaimation)/(Sumitomo Bank Ltd., Osaka LOC) VMIG1 $ 2,000,000 -------------------------------------------------------- 4,000,000 Orange County, CA IDA, (Series 1985B-Niguel Summit II) Weekly VRDNs (Hon Development Corp.)/(Bank of America NT and SA, San Francisco LOC) VMIG1 4,000,000 -------------------------------------------------------- 5,000,000 Orange County, CA IDA, (Series 1991A) Weekly VRDNs (The Lakes)/(Citibank NA, New York LOC) A-1 5,000,000 -------------------------------------------------------- 4,000,000 Orange County, CA Local Transportation Authority, Sales Tax Revenue Notes, 3.90% CP (Industrial Bank of Japan Ltd., Tokyo LOC), Mandatory Tender 12/14/1995 P-1 4,000,000 -------------------------------------------------------- 4,250,000 Pomona, CA, 4.70% TRANs, 6/28/1996 SP-1+ 4,260,683 -------------------------------------------------------- 2,400,000 Riverside County, CA, (Series A) Weekly VRDNs (Riverside, CA Public Facility Finance)/(Sanwa Bank Ltd., Osaka LOC) MIG1 2,400,000 -------------------------------------------------------- 950,000 Roseville, CA, Hospital Facilities Authority, (Series 1989A) Weekly VRDNs (Toronto-Dominion Bank LOC) VMIG1 950,000 -------------------------------------------------------- 1,600,000 Sacramento, CA, (Series 1990) Weekly VRDNs (Administration Center & Courthouse Project)/(Union Bank of Switzerland, Zurich LOC) VMIG1 1,600,000 -------------------------------------------------------- 1,700,000 San Bernardino County, CA, (Series 1985) Weekly VRDNs (Woodview Apartments)/(Bank of America NT and SA, San Francisco LOC) VMIG1 1,700,000 -------------------------------------------------------- 3,400,000 San Dimas, CA Redevelopment Agency, (Series 1995) Weekly VRDNs (Diversified Shopping Center Project)/ (Morgan Guaranty Trust Co., New York LOC) A-1+ 3,400,000 -------------------------------------------------------- 1,500,000 San Francisco, CA Redevelopment Finance Agency, (Series B1) Weekly VRDNs (Fillmore Center)/(Bank of Nova Scotia, Toronto LOC) A-1+ 1,500,000 -------------------------------------------------------- 1,000,000 Santa Clara County, CA, Housing Authority Weekly VRDNs (Benton Park Central Apartments)/(Citibank NA, New York LOC) P-1 1,000,000 --------------------------------------------------------
CALIFORNIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ---------- -------------------------------------------------------- -------- ----------- SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------ CALIFORNIA--CONTINUED -------------------------------------------------------- $1,400,000 Santa Clara County-El Comino Hospital District, CA, (Series 1985G) Weekly VRDNs (Valley Medical Center)/(National Westminster Bank, PLC, London LOC) A-1+ $ 1,400,000 -------------------------------------------------------- 400,000 Santa Clara, CA, (Series 1985C) Weekly VRDNs (Santa Clara, CA Electric System)/(National Westminster Bank, PLC, London LOC) A-1+ 400,000 -------------------------------------------------------- 4,000,000 Santa Cruz County, CA, 4.50% TRANs, 7/11/1996 SP-1+ 4,013,281 -------------------------------------------------------- 1,500,000 Selma, CA, 4.75% TRANs, 6/30/1996 SP-1+ 1,504,106 -------------------------------------------------------- 710,000 Stockton, CA, (Series 1993) Weekly VRDNs (La Quinta Inns, Inc.)/(Nationsbank of Texas, N.A. LOC) P-1 710,000 -------------------------------------------------------- 2,500,000 Temecula Valley Unified School District, CA, 4.50% TRANs, 7/5/1996 SP-1+ 2,508,104 -------------------------------------------------------- 995,000 Vallejo, CA, Commercial Development Revenue Refunding Bonds (1994 Series A) Weekly VRDNs (Vallejo Center Associates Project)/(Bank of Tokyo Ltd., Tokyo LOC) A-1 995,000 -------------------------------------------------------- ----------- Total 91,868,246 -------------------------------------------------------- ----------- PUERTO RICO--4.1% -------------------------------------------------------- 4,000,000 Puerto Rico Government Development Bank, 3.80% CP, Mandatory Tender 12/8/1995 A-1+ 4,000,000 -------------------------------------------------------- ----------- TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $95,868,246 -------------------------------------------------------- -----------
* Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. This security has been determined to be liquid under criteria established by the Board of Trustees. At the end of the period, this security amounted to $3,000,000 which represents 3.1% of net assets. (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($96,533,858) at October 31, 1995. CALIFORNIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronyms are used throughout this portfolio: CP -- Commercial Paper FGIC -- Financial Guaranty Insurance Company FSA -- Financial Security Assurance IDA -- Industrial Development Authority INS -- Insured LIQ -- Liquidity Agreement LOCs -- Letter(s) of Credit LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance PCFA -- Pollution Control Finance Authority PLC -- Public Limited Company RANs -- Revenue Anticipation Notes TRANs -- Tax and Revenue Anticipation Notes USD -- University School District VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) CALIFORNIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $95,868,246 - ------------------------------------------------------------------------------- Cash 267,336 - ------------------------------------------------------------------------------- Income receivable 657,697 - ------------------------------------------------------------------------------- ----------- Total assets 96,793,279 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for shares redeemed $ 9,263 - -------------------------------------------------------------------- Income distribution payable 216,978 - -------------------------------------------------------------------- Accrued expenses 33,180 - -------------------------------------------------------------------- -------- Total liabilities 259,421 - ------------------------------------------------------------------------------- ----------- NET ASSETS for 96,533,858 shares outstanding $96,533,858 - ------------------------------------------------------------------------------- ----------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: $96,533,858 / 96,533,858 shares outstanding $1.00 - ------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) CALIFORNIA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ------------------------------------------------------------------------------------ Interest $3,650,873 - ------------------------------------------------------------------------------------ EXPENSES: - ------------------------------------------------------------------------------------ Investment advisory fee $ 465,728 - ---------------------------------------------------------------------- Administrative personnel and services fee 125,000 - ---------------------------------------------------------------------- Custodian fees 28,922 - ---------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 42,992 - ---------------------------------------------------------------------- Directors'/Trustees' fees 2,208 - ---------------------------------------------------------------------- Auditing fees 18,633 - ---------------------------------------------------------------------- Legal fees 10,375 - ---------------------------------------------------------------------- Portfolio accounting fees 38,125 - ---------------------------------------------------------------------- Shareholder services fee 232,864 - ---------------------------------------------------------------------- Share registration costs 35,569 - ---------------------------------------------------------------------- Printing and postage 7,059 - ---------------------------------------------------------------------- Insurance premiums 9,767 - ---------------------------------------------------------------------- Miscellaneous 1,839 - ---------------------------------------------------------------------- ---------- Total expenses 1,019,081 - ---------------------------------------------------------------------- Waivers-- - ---------------------------------------------------------------------- Waiver of investment advisory fee $(402,906) - ---------------------------------------------------------- Waiver of shareholder services fee (65,184) - ---------------------------------------------------------- --------- Total waivers (468,090) - ---------------------------------------------------------------------- ---------- Net expenses 550,991 - ------------------------------------------------------------------------------------ ---------- Net investment income 3,099,882 - ------------------------------------------------------------------------------------ ---------- Net realized loss on investments (750,875) - ------------------------------------------------------------------------------------ ---------- Change in net assets resulting from operations $2,349,007 - ------------------------------------------------------------------------------------ ----------
(See Notes which are an integral part of the Financial Statements) CALIFORNIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31, 1995 OCTOBER 31, 1994* SEPTEMBER 30, 1994 ----------------- ------------------ ------------------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------- OPERATIONS-- - ------------------------------------- Net investment income $ 3,099,882 $ 189,550 $ 1,905,264 - ------------------------------------- Net realized gain (loss) on investments (750,875) -- -- - ------------------------------------- ----------------- ---------------- ------------------ Change in net assets resulting from operations 2,349,007 189,550 1,905,264 - ------------------------------------- ----------------- ---------------- ------------------ CAPITAL CONTRIBUTION 750,875 -- -- - ------------------------------------- ----------------- ---------------- ------------------ DISTRIBUTIONS TO SHAREHOLDERS-- - ------------------------------------- Distributions from net investment income (3,099,882) (189,550) (1,905,264) - ------------------------------------- ----------------- ---------------- ------------------ SHARE TRANSACTIONS-- - ------------------------------------- Proceeds from sale of shares 361,842,642 30,010,373 362,061,495 - ------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 471,326 30,088 324,591 - ------------------------------------- Cost of shares redeemed (347,342,783) (23,185,135) (392,000,668) - ------------------------------------- ----------------- ---------------- ------------------ Change in net assets resulting from share transactions 14,971,185 6,855,326 (29,614,582) - ------------------------------------- ----------------- ---------------- ------------------ Change in net assets 14,971,185 6,855,326 (29,614,582) - ------------------------------------- NET ASSETS: - ------------------------------------- Beginning of period 81,562,673 74,707,347 104,321,929 - ------------------------------------- ----------------- ---------------- ------------------ End of period $ 96,533,858 $ 81,562,673 $ 74,707,347 - ------------------------------------- ----------------- ---------------- ------------------
* For the one month ended October 31, 1994. (See Notes which are an integral part of the Financial Statements) CALIFORNIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Effective August 13, 1994, California Municipal Cash Trust (the "Fund") was reorganized into an investment portfolio of Federated Municipal Trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of the Fund. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 76.3% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or CALIFORNIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- supported (backed) by a letter of credit for any one institution or agency does not exceed 9.2% of total investments. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Trust will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1995 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST -------------------------------------------------- ----------------- ----------------- Los Angeles, CA, Wastewater System, Tender Option Certificates, (Series 1995D) Weekly VRDNs 6/1/95 $ 3,000,000\ CHANGE IN FISCAL YEAR--The Fund has changed its fiscal year-end from September 30, to October 31, beginning September 30, 1994. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). At October 31, 1995, capital paid-in aggregated $96,533,858. Transactions in shares were as follows:
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31, OCTOBER 31, SEPTEMBER 30, 1995 1994* 1994 - ---------------------------------------------------- ------------ ------------ -------------- Shares sold 361,842,642 30,010,373 362,061,495 - ---------------------------------------------------- Shares issued to shareholders in payment of distributions declared 471,326 30,088 324,591 - ---------------------------------------------------- Shares redeemed (347,342,783) (23,185,135) (392,000,668) - ---------------------------------------------------- ------------ ------------ ------------- Net change resulting from share transactions 14,971,185 6,855,326 (29,614,582) - ---------------------------------------------------- ------------ ------------ -------------
* For the one month ended October 31, 1994. CALIFORNIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive a portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of daily average net assets of the Fund for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of this fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ also maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. CAPITAL CONTRIBUTION--Federated Management made a capital contribution in the amount of $750,875 to California Municipal Cash Trust during the year ended October 31, 1995. The contribution represents the excess over fair market value ($720,000) paid by Federated Management to acquire $4,000,000 par, Orange County, CA, Series B Bonds from the fund on July 10, 1995. The contribution also consists of the cost of an LOC ($30,875) obtained by Federated Management on December 7, 1994 to support the value of the Orange County Bonds. The LOC guaranteed the principal amount of the securities in the event that the issuer did not timely pay the principal at maturity. These transctions resulted in a permanent book and tax difference. As such, the paid-in-capital and accumulated net realized gain/loss accounts have been adjusted accordingly. This adjustment did not affect net investment income, net realized gains/losses, or net assets. CALIFORNIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- INTERFUND TRANSACTIONS--During the period ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common Officers. These transactions were made at current market value pursuant to Rule 17a-7 under the Act amounting to $216,700,000 and $205,000,000 respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (California Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of California Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, changes in net assets for the year ended September 30, 1994, for the period from October 1, 1994, to October 31 1994, and for the year ended October 31, 1995, and the financial highlights (see page 2 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the periods ended September 30, 1989, through September 30, 1993, were audited by other auditors whose report dated November 12, 1993, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of California Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, the changes in net assets for the year ended September 30, 1994, for the period from October 1, 1994, to October 31 1994, and for the year ended October 31, 1995, and its financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 ADDRESSES - -------------------------------------------------------------------------------- California Municipal Cash Trust Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 - ---------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - ---------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - ----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CALIFORNIA MUNICIPAL CASH TRUST PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 CUSIP 314229766 G00329-01 (12/95) (LOGO) CALIFORNIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus(es) of California Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal Trust (the "Trust") dated December 31, 1995. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-235-4669. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1995 Federated Securities Corp. Distributor A subsidiary of Federated Investors INVESTMENT POLICIES 2 Acceptable Investments 2 Participation Interests 2 Municipal Leases 2 Ratings 3 When-Issued and Delayed Delivery Transactions 4 Repurchase Agreements 4 Credit Enhancement 5 CALIFORNIA INVESTMENT RISKS 5 INVESTMENT LIMITATIONS 8 Regulatory Compliance 12 FEDERATED MUNICIPAL TRUST MANAGEMENT 6 Share Ownership 11 Trustees Compensation 22 Trustee Liability 24 INVESTMENT ADVISORY SERVICES 24 Investment Adviser 24 Advisory Fees 25 BROKERAGE TRANSACTIONS 26 OTHER SERVICES 27 Fund Administration 27 Custodian and Portfolio Recordkeeper 28 Transfer Agent 14 Independent Public Accountants 14 SHAREHOLDER SERVICES AGREEMENT 28 DETERMINING NET ASSET VALUE 29 REDEMPTION IN KIND 30 MASSACHUSETTS PARTNERSHIP LAW 30 THE FUND'S TAX STATUS 31 PERFORMANCE INFORMATION 31 Yield 16 Effective Yield 32 Tax-Equivalent Yield 32 Tax-Equivalency Table 33 Total Return 34 Performance Comparisons 18 ABOUT FEDERATED INVESTORS 36 Mutual Fund Market 37 Institutional Clients 37 Trust Organizations 37 Broker/Dealers and Bank Broker/Dealer Subsidiaries 37 APPENDIX 20 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security, the issuer of any demand feature applicable to the security, or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of non-appropriation"); and any credit enhancement or legal recourse provided upon an event of non- appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1, or 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 rating categories. See "Regulatory Compliance." WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated on the Fund`s records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit-enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the "credit enhancer"), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. CALIFORNIA INVESTMENT RISKS LIMITS ON TAXING AND SPENDING AUTHORITY Developments in California ( the "State" or "California") which constrain the taxing and spending authority of California governmental entities could adversely affect the ability of such entities to meet their interest and/or principal payment obligations on securities they have issued or will issue. The following information constitutes only a brief summary and is not intended as a complete description. In 1978, a statewide referendum approved Proposition 13, an amendment to the California Constitution limiting both the valuation of real property for property tax purposes and the power of local taxing authorities to increase real property tax revenues. To provide revenue to local governments, legislation was enacted shortly thereafter providing for the redistribution to local governments of the State's then existing surplus in its General Fund, reallocation of revenues to local governments, and assumption by the State of certain local government obligations. More recent California legislation has, however, reduced State assistance payments to local governments and reallocated a portion of such payments to the State's General Fund. In 1979, California voters amended the California Constitution again by passing Article XIII B, which imposes an appropriations limit on the spending authority of certain State and local government entities. The State's appropriations limit is based on its 1978-1979 fiscal year authorizations to expend proceeds of taxes and is adjusted annually to reflect changes in cost of living and population and transfer of financial responsibility from one governmental unit to another. If a California governmental entity raises revenues beyond its appropriations limit, the excess must be returned to the entity's taxpayers within the two subsequent fiscal years, generally by a tax credit, refund, or temporary suspension of tax rates or fee schedules. These spending limitations do not, however, apply to the debt service on obligations existing or legally authorized as of January 1, 1979, or on bonded indebtedness thereafter approved by the voters. In November 1988, California voters approved Proposition 98. This initiative requires that revenues in excess of amounts permitted to be spent, and which would otherwise be returned by revision of tax rates or fee schedules, be transferred and allocated (up to a maximum of 4%) to the State School Fund and be expended solely for purposes of instructional improvement and accountability. Any funds allocated to the State school fund shall cause the appropriation limits to be annually increased for any such allocation made in the prior year. Proposition 98 also requires the State to provide a minimum level of funding for public schools and community colleges. The initiative permits the enactment of legislation, by a two-thirds vote, to suspend the minimum funding requirement for one year. On September 28, 1995, the California Supreme Court upheld the constitutionality of Proposition 62. This referendum was approved by the State's voters in 1986, but not enforced due to previous judicial decisions. Proposition 62 requires a two-thirds voter approval for special taxes and a new simple majority approval for general municipal purposes. The future effect of Proposition 62 on the financial performance of California local governments and on note and debt security in unclear. It is possible that court challenges, based on Proposition 62, to taxes raised or imposed after 1986, may reduce general municipal revenues available for financing municipal operations and services, including repayment of tax anticipation notes and other forms of debt such as certificates of participation. The effect of these various constitutional and statutory changes upon the ability of California municipal securities issuers to pay interest and principal on their obligations remains unclear. Furthermore, other measures affecting the taxing or spending authority of California or its political subdivisions may be approved or enacted in the future. ECONOMIC DEVELOPMENTS The California economy is in recovery. Statewide unemployment in September, 1995 was one full percentage point lower that in September, 1994. Major sectors of employment growth have been high tech industries and motion picture production. Gains in these and other sectors have more than offset continued job losses in the aerospace and financial services industries. Other positive economic developments include greatly increased exports, new home construction and retail sales. As a result of the improvement in the economy, tax revenues have been higher than budgeted. In the first quarter of fiscal year 1996, the State's General (operating) Fund revenues were $525 million (5.3%) above the budget forecast. Financial challenges clearly remain, as the budget for fiscal year 1996 appears to reflect optimism about certain revenue sources, most notably federal government aid for illegal immigrants. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as are necessary for clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money in amounts up to one-third of the value of its net assets, including the amounts borrowed. The Fund will not borrow money for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of the value of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may acquire publicly or non-publicly issued California municipal securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies, limitations, and the Trust's Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry, or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or certain money market instruments, securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. INVESTMENTS IN ANY ONE ISSUER With respect to securities comprising 75% of its assets, the Fund will not invest more than 10% of its total assets in the securities of any one issuer (except cash and cash items, repurchase agreements collateralized by U.S. government securities, and U.S. government obligations). Under this limitation, each governmental subdivision, including states, territories, possessions of the United States, or their political subdivisions, agencies, authorities, instrumentalities, or similar entities, will be considered a separate issuer if its assets and revenues are separate from those of the government body creating it and the security is backed only by its own assets and revenues. Industrial development bonds backed only by the assets and revenues of a non- governmental user are considered to be issued solely by that user. If in the case of an industrial development bond or government- issued security, a governmental or other entity guarantees the security, such guarantee would be considered a separate security issued by the guarantor, as well as the other issuer, subject to limited exclusions allowed by the Investment Company Act of 1940. The above limitations cannot be changed without shareholder approval. The following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its total assets in securities subject to restrictions on resale under federal securities law, except for restricted securities determined to be liquid under criteria established by the Trustees. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers (including companies responsible for paying principal and interest on industrial development bonds) which have records of less than three years of continuous operations, including the operation of any predecessor. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF THE TRUST The Fund will not purchase or retain the securities of any issuer if the officers and Trustees of the Trust or its investment adviser, owning individually more than .50 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. INVESTING IN MINERALS The Fund will not purchase or sell interests in oil, gas, or other mineral exploration or development programs or leases, although it may purchase the securities of issuers which invest in or sponsor such programs. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in its prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments, as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President of the Trust . Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds; formerly, Senior Partner, Ernst & Young LLP. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; President, Northgate Village Development Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Director, Trustee, or Managing General Partner of the Funds; formerly, President, Naples Property Management, Inc. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee, or Managing General Partner of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine and Member, Board of Trustees, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director, Trustee, or Managing General Partner of the Funds. Edward L. Flaherty, Jr.@ Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director, Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson * Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. and Federated Administrative Services. Peter E. Madden Seacliff 562 Bellevue Avenue Newport, RI Birthdate: March 16, 1942 Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, Trustee, or Managing General Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation. Gregor F. Meyer Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General Partner of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director, Trustee or Managing General Partner of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics and Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; founding Chairman, National Advisory Council for Environmental Policy and Technology and Federal Emergency Management Advisory Board. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/marketing consultant; Conference Coordinator, Non-profit entities; Director, Trustee, or Managing General Partner of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative Services, Federated Services Company, and Federated Shareholder Services; 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 of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. David M. Taylor Federated Investors Tower Pittsburgh, PA Birthdate: January 13, 1947 Treasurer Senior Vice President, Controller, and Trustee, Federated Investors; Controller, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., and Passport Research, Ltd.; Senior Vice President, Federated Shareholder Services; Vice President, Federated Administrative Services; Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President and Secretary Executive Vice President, Secretary, General Counsel, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds. * This Trustee is deemed to be an "interested person" as defined in the Investment Company Act of 1940. @ Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. As used in the table above, "The Funds" and "Funds" mean the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5 Years; 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; 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 U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut 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; The Virtus Funds; World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 4, 1995, the following shareholder(s) of record owned 5% or more of the outstanding shares of the California Municipal Cash Trust: Citibank NA, Long Island City, NY, 22.15%; Fiduciary Trust Co. International, New York, NY, 16.58%; REPUB & Co. Los Angeles, CA, 8.09%; Borel Bank & Trust, San Mateo, CA, 7.65%, First Interstate Bank, Calabasas, CA, 7.15%; and Piper Jaffray Inc., Minneapolis, MN, 6.45%. TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 68 other investment companies in the Fund Complex Thomas G. Bigley $2,458 $20,688 for the Trust and Trustee 49 other investment companies in the Fund Complex John T. Conroy, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex William J. Copeland $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Peter E. Madden $2,757 $90,563 for the Trust and Trustee 64 other investment companies in the Fund Complex Gregor F. Meyer $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex John E. Murray, Jr., $1,762 $0 for the Trust and Trustee 64 other investment companies in the Fund Complex Wesley W. Posvar $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Marjorie P. Smuts $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1995. #The aggregate compensation is provided for the Trust which is comprised of fifteen portfolios. +The information is provided for the last calendar year. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal year ended October 31, 1995, and for the period from October 1, 1994 to October 31, 1994, the adviser earned $465,758 and $34,909, respectively, of which $402,906 and $30,860, respectively, were waived. For the fiscal year ended September 30, 1994 and 1993, the adviser earned $469,163 and $541,209, respectively, of which $370,160 and $376,910, respectively, were waived. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this 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 fees. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal year ended October 31, 1995, and for the period from October 1, 1994 to October 31, 1994, as well as the fiscal years ended September 30, 1994 and 1993, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus Prior to March 1, 1994, Federated Administrative Services, Inc., also a subsidiary of Federated Investors, served as the Fund's Administrator. (For purposes of this Statement of Additional Information, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the "Administrators".) For the fiscal year ended October 31, 1995, and for the period from October 1, 1994 to October 31, 1994, Federated Administrative Services earned $125,000 and $10,617, respectively. For the fiscal year ended September 30, 1994, the Administrators collectively earned $178,552. For the fiscal year ended September 30, 1993, Federated Administrative Services, Inc., earned $235,058. Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, holds approximately 20% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. CUSTODIAN AND PORTFOLIO RECORDKEEPER State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. TRANSFER AGENT As transfer agent, Federated Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on the size, type and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES AGREEMENT This arrangement permits the payment of fees to Federated Shareholder Services and financial institutions to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Trustees expect that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal year ended October 31, 1995, the Fund paid shareholder services fees in the amount of $232,864, of which $65,184 were waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. The Fund's yield for the seven-day period ended October 31, 1995, was 3.31%. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. The Fund's effective yield for the seven-day period ended October 31, 1995, was 3.37%. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal rate for individuals) and assuming that income is 100% exempt. The Fund's tax-equivalent yield for the seven-day period ended October 31, 1995, was 6.70%. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a "tax-free" investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1995 State of California TAX BRACKET Combined Federal and State Tax Bracket: 21.00% 37.30% 40.30% 46.00% 49.60% 50.60% Joint $1- $39,001- $94,251- $143,601- $256,501- OVER Return $39,00 $94,250 $143,600 $256,500 $429,858 $429,858 Tax-Exempt Yield Taxable Yield Equivalent 1.50% 1.90% 2.39% 2.51% 2.78% 2.98% 3.04% 2.00 2.53 3.19 3.35 3.70 3.97 4.05 2.50 3.16 3.99 4.19 4.63 4.96 5.06 3.00 3.80 4.78 5.03 5.56 5.95 6.07 3.50 4.43 5.58 5.86 6.48 6.94 7.09 4.00 5.06 6.38 6.70 7.41 7.94 8.10 4.50 5.70 7.18 7.54 8.33 8.93 9.11 5.00 6.33 7.97 8.38 9.26 9.92 10.12 5.50 6.96 8.77 9.21 10.19 10.91 11.13 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. If you itemize deductions, your taxable yield equivalent will be lower. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of Fund shares. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local income taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. The average annual total returns for the one-year and five-year periods ended October 31, 1995, and for the period from April 3, 1989 (date of initial public investment) through October 31, 1995, were 3.37%, 2.87%, and 3.52%, respectively. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: O LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. o MONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1994, Federated Investors managed more than $31 billion in assets across approximately 43 money market funds, including 17 government, 8 prime and 18 municipal with assets approximating $17 billion, $7.4 billion and $6.6 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $2 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. *Source: Investment Company Institute TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity concerns and market access risks unique to notes. SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus sign (+) designation. SP-2 Satisfactory capacity to pay principal and interest. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a variable rate demand feature. The first rating (long-term rating) addresses the likelihood of repayment of principal and interest when due, and the second rating (short-term rating) describes the demand characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. LONG-TERM DEBT RATINGS AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rate "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATINGS Moody's Investor Service, Inc. (Moody's) short-term ratings are designated Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG ratings is to provide investors with a simple system by which the relative investment qualities of short-term obligations may be evaluated. MIG1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad based access to the market for refinancing. MIG2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the first representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the second representing an evaluation of the degree of risk associated with the demand feature. The VMIG rating can be assigned a 1 or 2 designation using the same definitions described above for the MIG rating. COMMERCIAL PAPER (CP) RATINGS P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short- term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well established industries, high rates of return on funds employed, conservative capitalization structure with moderate reliance on debt and ample asset protection, broad margins in earning coverage of fixed financial charges and high internal cash generation, well-established access to a range of financial markets and assured sources of alternate liquidity P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short- term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. LONG-TERM DEBT RATINGS AAA Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes is can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in AAA securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. NR Indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P or Moody's with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated A-1 or P-1. NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated "AAA" by S&P or "Aaa" by Moody's. NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated "AA" by S&P or "Aa" by Moody's. NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated "A" by S&P or Moody's. Cusip 314229766 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 Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term New York municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of New York, or its political subdivisions and financing authorities, but which provide 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 SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--CASH II SERIES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 New York Municipal Securities 5 Investment Risks 6 Non-Diversification 6 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Cash II Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ Special Purchase Features 10 HOW TO REDEEM SHARES 10 - ------------------------------------------------------ Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 12 - ------------------------------------------------------ TAX INFORMATION 12 - ------------------------------------------------------ Federal Income Tax 12 State and Local Taxes 13 OTHER CLASSES OF SHARES 13 - ------------------------------------------------------ PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SERVICE SHARES 15 - ------------------------------------------------------ FINANCIAL STATEMENTS 16 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 31 - ------------------------------------------------------ ADDRESSES 32 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- CASH II SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)........................................ None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)........................................ None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)...................... None Redemption Fee (as a percentage of amount redeemed, if applicable)........... None Exchange Fee................................................................. None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)............................................ 0.29% 12b-1 Fee (after waiver) (2)................................................. 0.02% Total Other Expenses......................................................... 0.40% Shareholder Services Fee (after waiver) (3)............................. 0.23% Total Operating Expenses (4)....................................... 0.71%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The maximum 12b-1 fee is 0.25%. (3) The maximum shareholder services fee is 0.25%. (4) The total operating expenses would have been 1.07% absent the voluntary waivers of a portion of the management fee, a portion of the 12b-1 fee and a portion of the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Cash II Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information". Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ----------------------------------------------------------------------------------------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period........... $ 7 $ 23 $ 40 $ 88
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. NEW YORK MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--CASH II SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 31.
YEAR ENDED OCTOBER 31, --------------------------------------------------- 1995 1994 1993** 1992 1991(A) ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $1.00 $ 1.00 $ 1.00 - ------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------ Net investment income 0.03 0.02 0.02 0.03 0.02 - ------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------ Distributions from net investment income (0.03) (0.02) (0.02 ) (0.03) (0.02 ) - ------------------------------------------ ------ ------ ----- ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $1.00 $ 1.00 $ 1.00 - ------------------------------------------ ------ ------ ----- ------ ------ TOTAL RETURN (B) 3.37% 2.15% 1.98 % 2.86% 2.20 % - ------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------ Expenses 0.71% 0.71% 0.71 % 0.73% 0.46 %* - ------------------------------------------ Net investment income 3.20% 2.19% 1.96 % 2.46% 4.08 %* - ------------------------------------------ Expense waiver/reimbursement(c) 0.36% 0.21% 0.17 % -- -- - ------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------ Net assets, end of period (000 omitted) $14,439 $134,051 $58,884 $4,641 $56 - ------------------------------------------
* Computed on an annualized basis. ** Prior to November 9, 1992, the Fund provided three classes of shares (a) Reflects operations for the period from April 25, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Trustees have established two classes of shares known as Cash II Shares and Institutional Service Shares. This prospectus relates only to Cash II Shares of the Fund, which are designed to provide a cash management vehicle for certain customers of financial institutions which would include corporations and municipalities, as well as larger individual accounts, seeking a high level of cash management services from the participating institution. The Fund may not be a suitable investment for retirement plans or for non-New York taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 within a 90 day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by New York State and New York municipalities consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of New York municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and the personal income taxes imposed by New York State and New York municipalities or so that at least 80% of its net assets is invested in obligations, the interest income from which is exempt from federal regular income tax and the personal income taxes imposed by New York State and New York municipalities. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of New York and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax, the personal income taxes imposed by New York State and New York municipalities, and New York State income tax imposed upon non-corporate taxpayers ("New York Municipal Securities"). Examples of New York 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 debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in New York Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying New York Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain New York Municipal Securities is subject to the federal alternative minimum tax. NEW YORK MUNICIPAL SECURITIES New York Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. New York Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of New York Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on New York Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of New York Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of New York Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in New York Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these New York Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of New York Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, 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. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being pur- chased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF CASH II SHARES Federated Securities Corp. is the principal distributor for Cash II Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"), the distributor may be paid a fee in an amount computed at an annual rate of .25 of 1% of the average daily net asset value of Cash II Shares 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 services or distribution-related 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 entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up .25 of 1% of the average daily net asset value of Cash II Shares to obtain certain personal services for shareholders and for the maintenance of shareholder accounts. Federated Shareholders Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. With respect to Cash II Shares, in addition to payments made pursuant to the Distribution Plan and Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance will be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS - -------------- ------------------------------------- .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of Cash II Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $25,000 within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 3:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o State, Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: New York Municipal Cash Trust, Cash II Shares; Fund Number (This number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to New York Municipal Cash Trust--Cash II Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. The check writing service allows shareholders to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than New York. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. NEW YORK TAXES. Under existing New York laws, distributions made by the Fund will not be subject to New York State or New York City personal income taxes to the extent that such distributions qualify as exempt-interest dividends the Internal Revenue Code, and represent interest income attributable to obligations issued of the State of New York and its political subdivisions as well as certain other obligations, the interest on which is exempt from New York State and New York City personal income taxes, such as, for example, certain obligations of the Commonwealth of Puerto Rico. Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to New York State and New York City personal income taxes. The Fund cannot predict in advance the exact portion of its dividends that will be exempt from New York State and New York City personal income taxes. However, the Fund will report to shareholders at least annually what percentage of the dividends it actually paid is exempt from such taxes. Dividends paid by the Fund are exempt from the New York City unincorporated business taxes to the same extent that they are exempt from the New York City personal income taxes. Dividends paid by the Fund are not excluded from net income in determining New York State or New York City franchise taxes on corporations or financial institutions. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers another class of shares called Institutional Service Shares that are sold primarily to banks and other institutions that hold assets for individuals, trusts, estates, or partnerships. Institutional Service Shares are sold at net asset value and are subject to a Rule 12b-1 Plan and a Shareholder Services Agreement. Investments in Institutional Service Shares are subject to a minimum initial investment of $25,000 within a 90-day period. Cash II Shares and Institutional Service Shares are subject to certain of the same expenses. Expense differences, however, between Cash II Shares and Institutional Service Shares may affect the performance of each class. To obtain more information and a prospectus for Institutional Service Shares, investors may call 1-800-235-4669. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield for shares. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the shares' tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. NEW YORK MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 31.
YEAR ENDED OCTOBER 31, -------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 -------------------- ------ ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------- INCOME FROM INVESTMENT OPERATIONS - --------------- Net investment income 0.04 0.02 0.02 0.03 0.04 0.05 0.06 0.05 0.04 0.04 - --------------- LESS DISTRIBUTIONS - --------------- Distributions from net investment income (0.04) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.05) (0.04) (0.04) - --------------- ---- ---- ----- ---- ---- ---- ---- ---- ---- ---- NET ASSET VALUE, END OF PERIOD $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- TOTAL RETURN(A) 3.56% 2.35% 2.16% 3.01% 4.59% 5.51% 5.70% 4.66% 3.90% 4.35% - --------------- RATIOS TO AVERAGE NET ASSETS - --------------- Expenses 0.54% 0.52% 0.54% 0.57% 0.52% 0.54% 0.55% 0.51% 0.47% 0.47% - --------------- Net investment income 3.49% 2.31% 2.14% 2.99% 4.48% 5.36% 5.56% 4.57% 3.81% 4.18% - --------------- Expense waiver/ reimbursement(b) 0.53% 0.13% 0.17% -- -- -- -- -- -- - --------------- SUPPLEMENTAL DATA - --------------- Net assets, end of period (000 omitted) $276,149 $236,580 $274,357 $164,492 $191,616 $197,213 $245,542 $212,786 $141,040 $183,941 - ---------------
(a) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (b) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ----------------------------------------------------- -------- ------------ SHORT-TERM MUNICIPAL SECURITIES--99.2% - ------------------------------------------------------------------------ NEW YORK--95.8% ----------------------------------------------------- $ 4,525,000 Albany City School District, NY, (Series 1995), 4.75% BANs, 5/3/1996 NR(3) $ 4,533,714 ----------------------------------------------------- 2,500,000 Albany, NY IDA, (Series 1995) Weekly VRDNs (Davies Office Refurbishing, Inc. Project)/ (Marine Midland Bank N.A., Buffalo, NY LOC) P-2 2,500,000 ----------------------------------------------------- 1,000,000 Babylon, NY IDA, (1994 Series) Weekly VRDNs (J. D'Addario & Company, Inc. Project)/ (National Westminster Bank, PLC, London LOC) VMIG1 1,000,000 ----------------------------------------------------- 3,246,000 Beacon, NY, 4.00% BANs, 8/16/1996 NR(3) 3,246,855 ----------------------------------------------------- 6,000,000 Brentwood Union Free School District, NY, 4.375% TANs, 6/28/1996 NR(3) 6,010,366 ----------------------------------------------------- 5,000,000 Brentwood Union Free School District, NY, 4.50% TANs, 6/28/1996 NR(3) 5,012,605 ----------------------------------------------------- 3,600,000 Broome County, NY, (Series 1995), 4.75% BANs, 4/19/1996 NR(3) 3,607,210 ----------------------------------------------------- 3,300,000 Chautauqua County, NY IDA Weekly VRDNs (Cliffstar Corp.)/(Society National Bank, Cleveland, OH LOC) P-1 3,300,000 ----------------------------------------------------- 3,900,000 Chautauqua County, NY IDA Weekly VRDNs (Mogen David Wine Corp.)/(Wells Fargo Bank, N.A. LOC) P-1 3,900,000 ----------------------------------------------------- 3,000,000 Chautauqua County, NY, (Series 1995), 5.50% TANs, 12/21/1995 NR(3) 3,001,530 ----------------------------------------------------- 1,140,000 Colonie, NY IDA Weekly VRDNs (Herbert S. Ellis)/ (Marine Midland Bank N.A., Buffalo, NY LOC) P-2 1,140,000 ----------------------------------------------------- 820,000 Colonie, NY IDA, (Series 1988) Weekly VRDNs (13 Green M-1 Drive Project)/(Marine Midland Bank N.A., Buffalo, NY LOC) P-2 820,000 ----------------------------------------------------- 5,000,000 Erie County, NY IDA, IDRB (Series 1994) Weekly VRDNs (Servotronics, Inc. Project)/(Fleet Bank of New York LOC) P-1 5,000,000 -----------------------------------------------------
NEW YORK MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ----------------------------------------------------- -------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ NEW YORK--CONTINUED ----------------------------------------------------- $ 1,800,000 Franklin County, NY IDA, (Series 1991A) Weekly VRDNs (KES Chateaugay)/(Bank of Tokyo Ltd., Tokyo LOC) A-1 $ 1,800,000 ----------------------------------------------------- 1,500,000 Guilderland, NY IDA, (Series 1993A) Weekly VRDNs (Northeastern Industrial Park, Inc.)/(Chemical Bank, New York LOC) P-1 1,500,000 ----------------------------------------------------- 5,140,000 Hempstead Union Free School District, NY, 4.50% TANs, 6/28/1996 NR(3) 5,160,103 ----------------------------------------------------- 4,000,000 Hempstead, NY, (Series 1995A), 5.50% BANs, 3/1/1996 VMIG1 4,009,720 ----------------------------------------------------- 4,760,000 Herkimer County, NY IDA, 1994 IDRB Weekly VRDNs (Granny's Kitchen)/(Bank of New York, New York LOC) A-1 4,760,000 ----------------------------------------------------- 3,500,000 Hudson Falls, NY Central School District, 3.82% BANs, 6/28/1996 NR(3) 3,500,421 ----------------------------------------------------- 3,700,000 Levittown Union Free School District, NY, 4.125% BANs, 10/25/1996 NR 3,706,077 ----------------------------------------------------- 1,000,000 Levittown Union Free School District, NY, 4.50% BANs, 10/25/1996 NR 1,005,183 ----------------------------------------------------- 927,000 Liverpool Central School District, NY, 3.90% BANs, 6/19/1996 NR(3) 927,839 ----------------------------------------------------- 3,770,000 Lockport, NY, 4.17% BANs, 5/30/1996 NR(3) 3,771,464 ----------------------------------------------------- 4,200,000 Longwood Central School District, NY, 4.50% TANs, 6/26/1996 NR 4,211,814 ----------------------------------------------------- 2,120,000 Madison County, NY IDA, (Series 1989A) Weekly VRDNs (Madison, NY Upstate Metals)/(Fleet Bank of New York LOC) A-1 2,120,000 ----------------------------------------------------- 15,000,000 Marine Midland, NY, Premium Tax-Exempt Bond & Loan Trust Weekly VRDNs (Marine Midland New York Trust)/(Marine Midland Bank N.A., Buffalo, NY LOC) P-1 15,000,000 ----------------------------------------------------- 1,002,814 Nassau County, NY IDA Weekly VRDNs (D.L. Blair Corp.)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) P-1 1,002,814 ----------------------------------------------------- 10,000,000 Nassau County, NY, (Series 1995A), 4.50% TANs, 3/15/1996 SP-1+ 10,021,790 -----------------------------------------------------
NEW YORK MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ----------------------------------------------------- -------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ NEW YORK--CONTINUED ----------------------------------------------------- $ 4,000,000 New York City Municipal Water Finance Authority, (Series 4), 3.75% CP (Credit Suisse, Zurich LOC), Mandatory Tender 1/23/1996 A-1+ $ 4,000,000 ----------------------------------------------------- 283,334 New York City, NY IDA Weekly VRDNs (David Rosen Bakers Supply)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) P-1 283,334 ----------------------------------------------------- 466,668 New York City, NY IDA Weekly VRDNs (Lomar Development Corp.)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) P-1 466,668 ----------------------------------------------------- 81,265 New York City, NY IDA Weekly VRDNs (MLN Associates)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) P-1 81,265 ----------------------------------------------------- 3,300,000 New York City, NY IDA Weekly VRDNs (Mindel Associates)/(Chemical Bank, New York LOC) A-1 3,300,000 ----------------------------------------------------- 1,900,000 New York City, NY IDA, Special Facility Revenue Bonds (Series 1990) Weekly VRDNs (Air France)/(Societe Generale, Paris LOC) A-1+ 1,900,000 ----------------------------------------------------- 5,000,000 New York State Dormitory Authority, (Series 1989B), 3.60% CP (Sloan-Kettering Memorial Cancer Center)/ (Chemical Bank, New York LOC), Mandatory Tender 11/17/1995 P-1 5,000,000 ----------------------------------------------------- 5,475,000 (a) New York State Dormitory Authority, PA-60 (Series 1993) Weekly VRDNs (Rochester General Hospital)/(FHA INS)/(Merrill Lynch Capital Services, Inc. LIQ) A-1+ 5,475,000 ----------------------------------------------------- 2,700,000 New York State Energy Research & Development Authority Weekly VRDNs (Long Island Lighting Co.)/(Toronto-Dominion Bank LOC) VMIG1 2,700,000 ----------------------------------------------------- 3,285,000 New York State Energy Research & Development Authority, (Series 1985), 4.40% TOBs (Rochester Gas & Electric Corp)/(Credit Suisse, Zurich LOC), Optional Tender 11/15/1995 A-1+ 3,285,000 ----------------------------------------------------- 2,000,000 New York State Energy Research & Development Authority, (Series 1985A), 4.70% TOBs (Long Island Lighting Co.)/(Deutsche Bank, AG LOC), Mandatory Tender 3/1/1996 A-1+ 2,000,000 -----------------------------------------------------
NEW YORK MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ----------------------------------------------------- -------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ NEW YORK--CONTINUED ----------------------------------------------------- $ 3,000,000 New York State Energy Research & Development Authority, (Series 1993A) Weekly VRDNs (Long Island Lighting Co.)/(Toronto-Dominion Bank LOC) VMIG1 $ 3,000,000 ----------------------------------------------------- 2,000,000 New York State Energy Research & Development Authority, 4.65% TOBs (New York State Electric and Gas Corp.)/(J.P. Morgan Delaware, Wilmington LOC), Optional Tender 3/15/1996 A-1+ 2,000,000 ----------------------------------------------------- 2,500,000 New York State HFA Weekly VRDNs (Special Surgery Hospital)/(Chemical Bank, New York LOC) VMIG1 2,500,000 ----------------------------------------------------- 4,000,000 New York State HFA, Housing Revenue Bonds (1985 Series A) Weekly VRDNs (Liberty View Apartments)/ (Chemical Bank, New York LOC) A-1 4,000,000 ----------------------------------------------------- 1,290,000 New York State Job Development Authority Weekly VRDNs (Sumitomo Bank Ltd., Osaka LOC) VMIG1 1,290,000 ----------------------------------------------------- 1,590,000 New York State Job Development Authority Weekly VRDNs (Sumitomo Bank Ltd., Osaka LOC) VMIG1 1,590,000 ----------------------------------------------------- 4,625,000 (a) New York State Medical Care Facilities Finance Agency, Hospital & Nursing Home Mortgage Revenue Bonds (1994 Series C) Weekly VRDNs (FHA INS)/(Merrill Lynch Capital Services, Inc. LIQ) A-1+ 4,625,000 ----------------------------------------------------- 3,700,000 (a) New York State Mortgage Agency, (Series PA-29) Weekly VRDNs (Merrill Lynch Capital Services, Inc. LIQ) VMIG1 3,700,000 ----------------------------------------------------- 4,945,000 (a) New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds (PA-87) Weekly VRDNs (Merrill Lynch Capital Services, Inc. LIQ) VMIG1 4,945,000 ----------------------------------------------------- 2,640,000 (a) New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds (Series PT-15B) Weekly VRDNs (Dai-Ichi Kangyo Bank Ltd., Tokyo LIQ) VMIG1 2,640,000 ----------------------------------------------------- 6,500,000 Niagara County, NY IDA Weekly VRDNs (Allegheny Ludlum Corp.)/(PNC Bank, N.A. LOC) A-1 6,500,000 -----------------------------------------------------
NEW YORK MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ----------------------------------------------------- -------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ NEW YORK--CONTINUED ----------------------------------------------------- $ 6,000,000 Niagara County, NY IDA, Solid Waste Disposal Facility Revenue Bonds (Series 1994B), 4.00% CP (American Ref- Fuel Company)/(Air Products & Chemicals, Inc. and Browning-Ferris Industries, Inc. GTDs), Mandatory Tender 12/8/1995 A-1 $ 6,000,000 ----------------------------------------------------- 9,900,000 Niagara County, NY IDA, Solid Waste Disposal Facility Revenue Bonds (Series 1994C), 3.90% CP (American Ref-Fuel Company)/(Air Products & Chemicals, Inc. and Browning-Ferris Industries, Inc. GTDs), Mandatory Tender 2/13/1996 A-1 9,900,000 ----------------------------------------------------- 6,000,000 Niagara County, NY IDA, Solid Waste Disposal Facility Revenue Bonds (Series 1994C), 4.00% CP (American Ref-Fuel Company)/(Air Products & Chemicals, Inc. and Browning-Ferris Industries, Inc. GTDs), Mandatory Tender 1/11/1996 A-1 6,000,000 ----------------------------------------------------- 1,010,000 North Hempstead, NY, (1995 Series B), 4.75% BANs, 4/25/1996 NR(3) 1,012,093 ----------------------------------------------------- 820,000 Onondaga County, NY IDA Weekly VRDNs (Beverage Corp.)/(Marine Midland Bank N.A., Buffalo, NY LOC) P-2 820,000 ----------------------------------------------------- 1,075,000 Onondaga County, NY IDA, (Series 1987) Weekly VRDNs (Southern Container Corp.)/(Chemical Bank, New York LOC) VMIG1 1,075,000 ----------------------------------------------------- 1,725,000 Onondaga County, NY Weekly VRDNs (Grainger (W.W.), Inc.) A-1+ 1,725,000 ----------------------------------------------------- 1,500,000 Ontario, NY IDA Weekly VRDNs (Hillcrest Enterprises/Buckeye Corrugated)/(National City Bank, Cleveland, OH LOC) P-1 1,500,000 ----------------------------------------------------- 5,700,000 Oswego County, NY IDA Weekly VRDNs (Copperweld Corp.)/(Credit Lyonnais, North America LOC) P-1 5,700,000 ----------------------------------------------------- 1,525,000 Perry Central School District, NY, 4.125% BANs, 6/21/1996 NR(3) 1,528,971 ----------------------------------------------------- 15,000,000 Port Authority of New York and New Jersey Weekly VRDNs A-1+ 15,000,000 ----------------------------------------------------- 15,000,000 Port Authority of New York and New Jersey Weekly VRDNs A-1+ 15,000,000 -----------------------------------------------------
NEW YORK MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ----------------------------------------------------- -------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ NEW YORK--CONTINUED ----------------------------------------------------- $ 1,000,000 Port Authority of New York and New Jersey, (Series 3) Weekly VRDNs (KIAC Partners)/(Deutsche Bank, AG LOC) P-1 $ 1,000,000 ----------------------------------------------------- 1,000,000 Rotterdam, NY IDA, (Series 1993A) Weekly VRDNs (Rotterdam Industrial Park)/(Chemical Bank, New York LOC) P-1 1,000,000 ----------------------------------------------------- 4,000,000 Saranac Central School District, NY, 4.50% BANs, 6/28/1996 NR(2) 4,016,394 ----------------------------------------------------- 650,817 Schenectady, NY IDA Weekly VRDNs (McClellan Street Associates)/(Ford Motor Credit Corp. 1994-A LIQ)/ (Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) P-1 650,817 ----------------------------------------------------- 3,000,000 Suffolk County, NY IDA Weekly VRDNs (C & J Realty Corp.)/(Ford Motor Credit Corp. 1994-A LIQ)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) P-1 3,000,000 ----------------------------------------------------- 509,167 Suffolk County, NY IDA Weekly VRDNs (CS Property/ Tara Toy, Inc.)/(Ford Motor Credit Corp. 1994-A LIQ)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) P-1 509,167 ----------------------------------------------------- 432,000 Suffolk County, NY IDA Weekly VRDNs (D.A. Yaron)/(Ford Motor Credit Corp. 1994-A LIQ)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) P-1 432,000 ----------------------------------------------------- 1,050,000 Suffolk County, NY IDA Weekly VRDNs (Poly Research Corp.)/(Marine Midland Bank N.A., Buffalo, NY LOC) P-2 1,050,000 ----------------------------------------------------- 1,800,000 Suffolk County, NY IDA, 5.6875% TOBs (Grainger (W.W.), Inc.), Optional Tender 12/1/1995 P-1 1,800,000 ----------------------------------------------------- 5,000,000 (a) VRDC/IVRC Trust, (Series 1992A) Weekly VRDNs (New York City Municipal Water Finance Authority)/(MBIA Insurance Corporation INS)/(HongKong & Shanghai Banking Corp. LIQ) A-1 5,000,000 ----------------------------------------------------- 7,000,000 (a) VRDC/IVRC Trust, (Series 1993B) Weekly VRDNs (New York Metropolitan Transportation Authority)/(AMBAC INS)/(HongKong & Shanghai Banking Corp. LIQ) A-1 7,000,000 ----------------------------------------------------- 7,500,000 Walden Village, NY IDA, IDRB (Series 1994) Weekly VRDNs (Spence Engineering Co.)/(First Union National Bank, Charlotte, N.C. LOC) P-1 7,500,000 -----------------------------------------------------
NEW YORK MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ----------------------------------------------------- -------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ NEW YORK--CONTINUED ----------------------------------------------------- $ 5,685,000 Warren & Washington Counties, NY IDA Weekly VRDNs (Sandy Hill Corp.)/(First Union National Bank, Charlotte, N.C. LOC) A-1 $ 5,685,000 ----------------------------------------------------- 1,415,000 Yates County, NY IDA, (Series 1992A) Weekly VRDNs (Clearplass Container)/(Fleet Bank of New York LOC) A-1 1,415,000 ----------------------------------------------------- 2,300,000 Yonkers, NY IDA, (Series 1992A) Weekly VRDNs (Consumers Union Facility)/(Industrial Bank of Japan Ltd., Tokyo LOC) VMIG1 2,300,000 ----------------------------------------------------- ------------ TOTAL 278,470,214 ----------------------------------------------------- ------------ PUERTO RICO--3.4% ----------------------------------------------------- 10,000,000 (a) Commonwealth of Puerto Rico, Public Improvement Refunding Bonds TOC (Series 1995B) Weekly VRDNs (MBIA Insurance Corporation INS)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LIQ) A-1 10,000,000 ----------------------------------------------------- ------------ TOTAL INVESTMENTS, AT AMORTIZED COST(B) $288,470,214 ----------------------------------------------------- ------------
Securities that are subject to Alternative Minimum Tax represent 34% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. These securities have been determined to be liquid under criteria established by the Board of Trustees. At the end of the period, these securities amounted to ($43,385,000) which represents 15% of net assets. (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($290,587,984) at October 31, 1995. NEW YORK MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronym(s) are used throughout this portfolio: AMBAC -- American Municipal Bond Assurance Corporation BANs -- Bond Anticipation Notes CP -- Commercial Paper FHA -- Federal Housing Administration GTDs -- Guarantees HFA -- Housing Finance Authority IDA -- Industrial Development Authority IDRB -- Industrial Development Revenue Bond INS -- Insured LIQ -- Liquidity Agreement LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance PLC -- Public Limited Company TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds TOC -- Tender Option Certificate VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------ Total investments in securities, at amortized cost and value $288,470,214 - ------------------------------------------------------------------------------ Cash 388,388 - ------------------------------------------------------------------------------ Income receivable 2,534,760 - ------------------------------------------------------------------------------ Receivable for shares sold 266 - ------------------------------------------------------------------------------ ------------ Total assets 291,393,628 - ------------------------------------------------------------------------------ LIABILITIES: - ------------------------------------------------------------------------------ Payable for shares redeemed $183,571 - ------------------------------------------------------------------- Income distribution payable 585,672 - ------------------------------------------------------------------- Accrued expenses 36,401 - ------------------------------------------------------------------- -------- Total liabilities 805,644 - ------------------------------------------------------------------------------ ------------ NET ASSETS for 290,593,593 shares outstanding $290,587,984 - ------------------------------------------------------------------------------ ------------ NET ASSETS CONSIST OF: - ------------------------------------------------------------------------------ Paid in capital $290,593,593 - ------------------------------------------------------------------------------ Accumulated net realized loss on investments (5,609) - ------------------------------------------------------------------------------ ------------ Total Net Assets $290,587,984 - ------------------------------------------------------------------------------ ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------ INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------ $276,149,176/276,155,517 shares outstanding $1.00 - ------------------------------------------------------------------------------ ------------ CASH II SHARES: - ------------------------------------------------------------------------------ $14,438,808/14,438,076 shares outstanding $1.00 - ------------------------------------------------------------------------------ ------------
(See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------------- Interest $13,386,966 - ---------------------------------------------------------------------------------------- EXPENSES: - ---------------------------------------------------------------------------------------- Investment advisory fee $ 1,335,835 - ------------------------------------------------------------------------- Administrative personnel and services fee 252,807 - ------------------------------------------------------------------------- Custodian fees 88,001 - ------------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 53,726 - ------------------------------------------------------------------------- Directors'/Trustees' fees 5,982 - ------------------------------------------------------------------------- Auditing fees 19,781 - ------------------------------------------------------------------------- Legal fees 2,827 - ------------------------------------------------------------------------- Portfolio accounting fees 64,263 - ------------------------------------------------------------------------- Distribution services fee--Institutional Service Shares 690,979 - ------------------------------------------------------------------------- Distribution services fee--Cash II Shares 143,918 - ------------------------------------------------------------------------- Shareholder services fee--Institutional Service Shares 690,979 - ------------------------------------------------------------------------- Shareholder services fee--Cash II Shares 143,918 - ------------------------------------------------------------------------- Share registration costs 19,808 - ------------------------------------------------------------------------- Printing and postage 26,828 - ------------------------------------------------------------------------- Insurance premiums 8,298 - ------------------------------------------------------------------------- Miscellaneous 4,914 - ------------------------------------------------------------------------- ----------- Total expenses 3,552,864 - ------------------------------------------------------------------------- Waivers-- - ------------------------------------------------------------------------- Waiver of investment advisory fee $(351,948) - ------------------------------------------------------------- Waiver of distribution services fee--Institutional Service Shares (690,979) - ------------------------------------------------------------- Waiver of distribution services fee--Cash II Shares (130,887) - ------------------------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (477,927) - ------------------------------------------------------------- Waiver of shareholder services fee--Cash II Shares (13,031) - ------------------------------------------------------------- --------- Total waivers (1,664,772) - ------------------------------------------------------------------------- ----------- Net expenses 1,888,092 - ---------------------------------------------------------------------------------------- ----------- Net investment income 11,498,874 - ---------------------------------------------------------------------------------------- ----------- Net realized gain on investments 12,000 - ---------------------------------------------------------------------------------------- ----------- Change in net assets resulting from operations $11,510,874 - ---------------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, --------------------------------- 1995 1994 --------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------------ OPERATIONS-- - ------------------------------------------------------------ Net investment income $ 11,498,874 $ 7,881,134 - ------------------------------------------------------------ --------------- ------------- Net realized gain (loss) on investments 12,000 322 - ------------------------------------------------------------ --------------- ------------- Change in net assets resulting from operations 11,510,874 7,881,456 - ------------------------------------------------------------ --------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ------------------------------------------------------------ Distributions from net investment income - ------------------------------------------------------------ Institutional Service Shares (9,657,797) (5,630,675) - ------------------------------------------------------------ Cash II Shares (1,841,077) (2,250,459) - ------------------------------------------------------------ --------------- ------------- Change in net assets resulting from distributions to shareholders (11,498,874) (7,881,134) - ------------------------------------------------------------ --------------- ------------- SHARE TRANSACTIONS-- - ------------------------------------------------------------ Proceeds from sale of Shares 1,236,075,244 918,756,952 - ------------------------------------------------------------ Net asset value of Shares issued to shareholders in payment of distributions declared 3,314,165 2,705,999 - ------------------------------------------------------------ Cost of Shares redeemed (1,319,444,545) (884,074,127) - ------------------------------------------------------------ --------------- ------------- Change in net assets resulting from share transactions (80,055,136) 37,388,824 - ------------------------------------------------------------ --------------- ------------- Change in net assets (80,043,136) 37,389,146 - ------------------------------------------------------------ --------------- ------------- NET ASSETS: - ------------------------------------------------------------ Beginning of period 370,631,120 333,241,974 - ------------------------------------------------------------ --------------- ------------- End of period $ 290,587,984 $ 370,631,120 - ------------------------------------------------------------ --------------- -------------
(See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of New York Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers two classes of shares: Institutional Service Shares and Cash II Shares. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. At October 31, 1995, the Fund, for federal tax purposes, had a capital loss carryforward of $5,609, which will reduce the Fund's taxable income arising from future net realized gain on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
EXPIRATION YEAR EXPIRATION AMOUNT --------------------------------- --------------------------------- 1996 $5,609
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers in that NEW YORK MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 61% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or supported (backed) by a letter of credit for any one institution or agency do not exceed 7.6% of total investments. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1995 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST ---------------------------------------------------- ---------------- ---------------- New York State Dormitory Authority PA-60 (Series March 13, 1995 $ 5,475,000 1989B) New York State Medical Care Facilities Finance July 5, 1995 4,625,000 Agency New York State Mortgage Agency (Series PA-29) April 3, 1995 3,700,000 New York State Mortgage Agency (Series PA-87) July 5, 1995 4,945,000 New York State Mortgage Agency (Series PT-15B) July 5, 1995 2,640,000 VRDC/IVRC Trust (Series 1992A) New York City July 5, 1995 5,000,000 Municipal Water Finance Authority VRDC/IVRC Trust (Series 1993B) New York Metropolitan May 19, 1995 7,000,000 Transportation Authority Commonwealth of Puerto Rico, Public Improvement May 25, 1995 10,000,000 Refunding Bonds TOC (Series 1995b)
OTHER--Investment transactions are accounted for on the trade date. NEW YORK MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1995, capital paid-in aggregated $290,593,593. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, ------------------------------- INSTITUTIONAL SERVICE SHARES 1995 1994 - ------------------------------------------------------------- ------------- ------------- Shares sold 1,002,966,036 548,493,561 - ------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,484,402 758,005 - ------------------------------------------------------------- Shares redeemed (964,892,684) (587,029,347) - ------------------------------------------------------------- ------------- ------------- Net change resulting from Institutional Service share transactions 39,557,754 (37,777,781) - ------------------------------------------------------------- ------------- -------------
YEAR ENDED OCTOBER 31, ------------------------------- CASH II SHARES 1995 1994 - ------------------------------------------------------------- ------------- ------------- Shares sold 233,109,208 370,263,391 - ------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,829,763 1,947,994 - ------------------------------------------------------------- Shares redeemed (354,551,861) (297,044,780) - ------------------------------------------------------------- ------------- ------------- Net change resulting from Cash II share transactions (119,612,890) 75,166,605 - ------------------------------------------------------------- ------------- ------------- Net change resulting from share transactions (80,055,136) 37,388,824 - ------------------------------------------------------------- ------------- -------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will reimburse Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Institutional Service Shares and Cash II Shares. The Plan provides that the Fund may incur distribution expenses up to .25 of 1% of the average daily net assets of the Institutional Service Shares and Cash II Shares, annually, to reimburse FSC. SHAREHOLDER SERVICE FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net assets of the NEW YORK MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- Fund shares for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS--During the period ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common Officers. These transactions were made at current market value pursuant to rule 17a-7 under the Act amounting to $518,060,000 and $576,715,000 respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (New York Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of New York Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights (see pages 2 and 15 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the periods ended October 31, 1993 and prior, were audited by other auditors whose report dated December 17, 1993, expressed and unqualified opinion on those financial highlights. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of New York Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 ADDRESSES - -------------------------------------------------------------------------------- New York Municipal Cash Trust Cash II Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 - ---------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - ---------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - ----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NEW YORK MUNICIPAL CASH TRUST CASH II SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 CUSIP 314229733 G00208-02 (12/95) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term New York municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of New York, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and personal income taxes imposed by New York State and New York municipalities consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SERVICE SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 New York Municipal Securities 5 Investment Risks 6 Non-Diversification 6 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Institutional Service Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ Special Purchase Features 10 HOW TO REDEEM SHARES 10 - ------------------------------------------------------ Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 12 - ------------------------------------------------------ TAX INFORMATION 12 - ------------------------------------------------------ Federal Income Tax 12 State and Local Tax 13 OTHER CLASSES OF SHARES 13 - ------------------------------------------------------ PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--CASH II SHARES 15 - ------------------------------------------------------ FINANCIAL STATEMENTS 16 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 31 - ------------------------------------------------------ ADDRESSES 32 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)........................................ None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)........................................ None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)...................... None Redemption Fee (as a percentage of amount redeemed, if applicable)........... None Exchange Fee................................................................. None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)............................................ 0.29% 12b-1 Fee (after waiver) (2)................................................. 0.00% Total Other Expenses......................................................... 0.27% Shareholder Services Fee (after waiver) (3)............................. 0.10% Total Operating Expenses (4)....................................... 0.56%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The maximum 12b-1 fee is 0.25%. (3) The maximum shareholder services fee is 0.25%. (4) The total operating expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1996. The total operating expenses were 0.54% for the fiscal year ended October 31, 1995 and would have been 1.07% absent the voluntary waivers of a portion of the management fee, the 12b-1 fee and a portion of the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Service Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire- transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ----------------------------------------------------------------------------------------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period........... $ 6 $ 18 $ 31 $ 70
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. NEW YORK MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 31.
YEAR ENDED OCTOBER 31, -------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 -------------------- ------ ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------- INCOME FROM INVESTMENT OPERATIONS - --------------- Net investment income 0.04 0.02 0.02 0.03 0.04 0.05 0.06 0.05 0.04 0.04 - --------------- LESS DISTRIBUTIONS - --------------- Distributions from net investment income (0.04) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.05) (0.04) (0.04) - --------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- TOTAL RETURN(A) 3.56% 2.35% 2.16% 3.01% 4.59% 5.51% 5.70% 4.66% 3.90% 4.35% - --------------- RATIOS TO AVERAGE NET ASSETS - --------------- Expenses 0.54% 0.52% 0.54% 0.57% 0.52% 0.54% 0.55% 0.51% 0.47% 0.47% - --------------- Net investment income 3.49% 2.31% 2.14% 2.99% 4.48% 5.36% 5.56% 4.57% 3.81% 4.18% - --------------- Expense waiver/ reimbursement(b) 0.53% 0.13% 0.17% -- -- -- -- -- -- - --------------- SUPPLEMENTAL DATA - --------------- Net assets, end of period (000 omitted) $276,149 $236,580 $274,357 $164,492 $191,616 $197,213 $245,542 $212,786 $141,040 $183,941 - ---------------
(a) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (b) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Trustees have established two classes of shares known as Institutional Service Shares and Cash II Shares. This prospectus relates only to Institutional Service Shares of the Fund, which are designed primarily for banks and other institutions that hold assets for individuals, trusts, estates, or partnerships, as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term New York municipal securities. The Fund may not be a suitable investment for retirement plans or for non-New York taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax, the personal income taxes imposed by New York State and New York municipalities consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of New York municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and the personal income taxes imposed by New York State and New York municipalities or so that at least 80% of its net assets is invested in obligations, the interest income from which is exempt from federal regular income tax and the personal income taxes imposed by New York State and New York municipalities. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of New York and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax, the personal income taxes imposed by New York State and New York municipalities, and New York State income tax imposed upon non-corporate taxpayers ("New York Municipal Securities"). Examples of New York 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 debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in New York Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying New York Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain New York Municipal Securities is subject to the federal alternative minimum tax. NEW YORK MUNICIPAL SECURITIES New York Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. New York Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of New York Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on New York Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of New York Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of New York Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in New York Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these New York Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of New York Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, 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. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being pur- chased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES Federated Securities Corp. is the principal distributor for Institutional Service Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"), the distributor may be paid a fee in an amount computed at an annual rate of .25 of 1% of the average daily net asset value of Institutional Service Shares to finance any activity which is principally intended to result in the sale of shares subject to the Distribution Plan. The Fund does not currently make payments to the distributor or charge a fee under the Distribution Plan and shareholders will be notified if the Fund intends to charge a fee under the Distribution Plan. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide services or distribution-related 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 entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up .25 of 1% of the average daily net asset value of Institutional Service Shares to obtain certain personal services for shareholders and for the maintenance of shareholder accounts. Federated Shareholders Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. With respect to Institutional Service Shares, in addition to payments made pursuant to the Distribution Plan and Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance will be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS -------------------------------- -------------------------------- .15 of 1% on the first $250 million .125 of 1% on the next $250 million .10 of 1% on the next $250 million on assets in excess of $750 .075 of 1% 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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of Institutional Service Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $25,000 within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 3:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: New York Municipal Cash Trust, Institutional Service Shares; Fund Number (This number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to New York Municipal Cash Trust--Institutional Service Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. The check writing service allows shareholders to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than New York. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. NEW YORK TAXES. Under existing New York laws, distributions made by the Fund will not be subject to New York State or New York City personal income taxes to the extent that such distributions qualify as exempt-interest dividends the Internal Revenue Code, and represent interest income attributable to obligations issued of the State of New York and its political subdivisions as well as certain other obligations, the interest on which is exempt from New York State and New York City personal income taxes, such as, for example, certain obligations of the Commonwealth of Puerto Rico. Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to New York State and New York City personal income taxes. The Fund cannot predict in advance the exact portion of its dividends that will be exempt from New York State and New York City personal income taxes. However, the Fund will report to shareholders at least annually what percentage of the dividends it actually paid is exempt from such taxes. Dividends paid by the Fund are exempt from the New York City unincorporated business taxes to the same extent that they are exempt from the New York City personal income taxes. Dividends paid by the Fund are not excluded from net income in determining New York State or New York City franchise taxes on corporations or financial institutions. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers another class of shares called Cash II Shares that are sold primarily to 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. Cash II Shares are sold at net asset value and are subject to a Rule 12b-1 Plan and a Shareholder Services Agreement. Investments in Cash II Shares are subject to a minimum initial investment of $25,000 within a 90-day period. Institutional Service Shares and Cash II Shares are subject to certain of the same expenses. Expense differences, however, between Institutional Service Shares and Cash II Shares may affect the performance of each class. To obtain more information and a prospectus for Cash II Shares, investors may call 1-800-235-4669. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield for shares. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the shares' tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. NEW YORK MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--CASH II SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 31.
YEAR ENDED OCTOBER 31, --------------------------------------------------- 1995 1994 1993** 1992 1991(A) ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $1.00 $ 1.00 $ 1.00 - ------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------ Net investment income 0.03 0.02 0.02 0.03 0.02 - ------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------ Distributions from net investment income (0.03) (0.02) (0.02 ) (0.03) (0.02 ) - ------------------------------------------ ------ ------ ----- ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $1.00 $ 1.00 $ 1.00 - ------------------------------------------ ------ ------ ----- ------ ------ TOTAL RETURN (B) 3.37% 2.15% 1.98 % 2.86% 2.20 % - ------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------ Expenses 0.71% 0.71% 0.71 % 0.73% 0.46 %* - ------------------------------------------ Net investment income 3.20% 2.19% 1.96 % 2.46% 4.08 %* - ------------------------------------------ Expense waiver/reimbursement(c) 0.36% 0.21% 0.17 % -- -- - ------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------ Net assets, end of period (000 omitted) $14,439 $134,051 $58,884 $4,641 $56 - ------------------------------------------
* Computed on an annualized basis. ** Prior to November 9, 1992, the Fund provided three classes of shares. (a) Reflects operations for the period from April 25, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ----------------------------------------------------- -------- ------------ SHORT-TERM MUNICIPAL SECURITIES--99.2% - ------------------------------------------------------------------------ NEW YORK--95.8% ----------------------------------------------------- $ 4,525,000 Albany City School District, NY, (Series 1995), 4.75% BANs, 5/3/1996 NR(3) $ 4,533,714 ----------------------------------------------------- 2,500,000 Albany, NY IDA, (Series 1995) Weekly VRDNs (Davies Office Refurbishing, Inc. Project)/ (Marine Midland Bank N.A., Buffalo, NY LOC) P-2 2,500,000 ----------------------------------------------------- 1,000,000 Babylon, NY IDA, (1994 Series) Weekly VRDNs (J. D'Addario & Company, Inc. Project)/ (National Westminster Bank, PLC, London LOC) VMIG1 1,000,000 ----------------------------------------------------- 3,246,000 Beacon, NY, 4.00% BANs, 8/16/1996 NR(3) 3,246,855 ----------------------------------------------------- 6,000,000 Brentwood Union Free School District, NY, 4.375% TANs, 6/28/1996 NR(3) 6,010,366 ----------------------------------------------------- 5,000,000 Brentwood Union Free School District, NY, 4.50% TANs, 6/28/1996 NR(3) 5,012,605 ----------------------------------------------------- 3,600,000 Broome County, NY, (Series 1995), 4.75% BANs, 4/19/1996 NR(3) 3,607,210 ----------------------------------------------------- 3,300,000 Chautauqua County, NY IDA Weekly VRDNs (Cliffstar Corp.)/(Society National Bank, Cleveland, OH LOC) P-1 3,300,000 ----------------------------------------------------- 3,900,000 Chautauqua County, NY IDA Weekly VRDNs (Mogen David Wine Corp.)/(Wells Fargo Bank, N.A. LOC) P-1 3,900,000 ----------------------------------------------------- 3,000,000 Chautauqua County, NY, (Series 1995), 5.50% TANs, 12/21/1995 NR(3) 3,001,530 ----------------------------------------------------- 1,140,000 Colonie, NY IDA Weekly VRDNs (Herbert S. Ellis)/ (Marine Midland Bank N.A., Buffalo, NY LOC) P-2 1,140,000 ----------------------------------------------------- 820,000 Colonie, NY IDA, (Series 1988) Weekly VRDNs (13 Green M-1 Drive Project)/(Marine Midland Bank N.A., Buffalo, NY LOC) P-2 820,000 ----------------------------------------------------- 5,000,000 Erie County, NY IDA, IDRB (Series 1994) Weekly VRDNs (Servotronics, Inc. Project)/(Fleet Bank of New York LOC) P-1 5,000,000 -----------------------------------------------------
NEW YORK MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ----------------------------------------------------- -------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ NEW YORK--CONTINUED ----------------------------------------------------- $ 1,800,000 Franklin County, NY IDA, (Series 1991A) Weekly VRDNs (KES Chateaugay)/(Bank of Tokyo Ltd., Tokyo LOC) A-1 $ 1,800,000 ----------------------------------------------------- 1,500,000 Guilderland, NY IDA, (Series 1993A) Weekly VRDNs (Northeastern Industrial Park, Inc.)/(Chemical Bank, New York LOC) P-1 1,500,000 ----------------------------------------------------- 5,140,000 Hempstead Union Free School District, NY, 4.50% TANs, 6/28/1996 NR(3) 5,160,103 ----------------------------------------------------- 4,000,000 Hempstead, NY, (Series 1995A), 5.50% BANs, 3/1/1996 VMIG1 4,009,720 ----------------------------------------------------- 4,760,000 Herkimer County, NY IDA, 1994 IDRB Weekly VRDNs (Granny's Kitchen)/(Bank of New York, New York LOC) A-1 4,760,000 ----------------------------------------------------- 3,500,000 Hudson Falls, NY Central School District, 3.82% BANs, 6/28/1996 NR(3) 3,500,421 ----------------------------------------------------- 3,700,000 Levittown Union Free School District, NY, 4.125% BANs, 10/25/1996 NR 3,706,077 ----------------------------------------------------- 1,000,000 Levittown Union Free School District, NY, 4.50% BANs, 10/25/1996 NR 1,005,183 ----------------------------------------------------- 927,000 Liverpool Central School District, NY, 3.90% BANs, 6/19/1996 NR(3) 927,839 ----------------------------------------------------- 3,770,000 Lockport, NY, 4.17% BANs, 5/30/1996 NR(3) 3,771,464 ----------------------------------------------------- 4,200,000 Longwood Central School District, NY, 4.50% TANs, 6/26/1996 NR 4,211,814 ----------------------------------------------------- 2,120,000 Madison County, NY IDA, (Series 1989A) Weekly VRDNs (Madison, NY Upstate Metals)/(Fleet Bank of New York LOC) A-1 2,120,000 ----------------------------------------------------- 15,000,000 Marine Midland, NY, Premium Tax-Exempt Bond & Loan Trust Weekly VRDNs (Marine Midland New York Trust)/(Marine Midland Bank N.A., Buffalo, NY LOC) P-1 15,000,000 ----------------------------------------------------- 1,002,814 Nassau County, NY IDA Weekly VRDNs (D.L. Blair Corp.)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) P-1 1,002,814 ----------------------------------------------------- 10,000,000 Nassau County, NY, (Series 1995A), 4.50% TANs, 3/15/1996 SP-1+ 10,021,790 -----------------------------------------------------
NEW YORK MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ----------------------------------------------------- -------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ NEW YORK--CONTINUED ----------------------------------------------------- $ 4,000,000 New York City Municipal Water Finance Authority, (Series 4), 3.75% CP (Credit Suisse, Zurich LOC), Mandatory Tender 1/23/1996 A-1+ $ 4,000,000 ----------------------------------------------------- 283,334 New York City, NY IDA Weekly VRDNs (David Rosen Bakers Supply)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) P-1 283,334 ----------------------------------------------------- 466,668 New York City, NY IDA Weekly VRDNs (Lomar Development Corp.)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) P-1 466,668 ----------------------------------------------------- 81,265 New York City, NY IDA Weekly VRDNs (MLN Associates)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) P-1 81,265 ----------------------------------------------------- 3,300,000 New York City, NY IDA Weekly VRDNs (Mindel Associates)/(Chemical Bank, New York LOC) A-1 3,300,000 ----------------------------------------------------- 1,900,000 New York City, NY IDA, Special Facility Revenue Bonds (Series 1990) Weekly VRDNs (Air France)/(Societe Generale, Paris LOC) A-1+ 1,900,000 ----------------------------------------------------- 5,000,000 New York State Dormitory Authority, (Series 1989B), 3.60% CP (Sloan-Kettering Memorial Cancer Center)/ (Chemical Bank, New York LOC), Mandatory Tender 11/17/1995 P-1 5,000,000 ----------------------------------------------------- 5,475,000 (a) New York State Dormitory Authority, PA-60 (Series 1993) Weekly VRDNs (Rochester General Hospital)/(FHA INS)/(Merrill Lynch Capital Services, Inc. LIQ) A-1+ 5,475,000 ----------------------------------------------------- 2,700,000 New York State Energy Research & Development Authority Weekly VRDNs (Long Island Lighting Co.)/(Toronto-Dominion Bank LOC) VMIG1 2,700,000 ----------------------------------------------------- 3,285,000 New York State Energy Research & Development Authority, (Series 1985), 4.40% TOBs (Rochester Gas & Electric Corp)/(Credit Suisse, Zurich LOC), Optional Tender 11/15/1995 A-1+ 3,285,000 ----------------------------------------------------- 2,000,000 New York State Energy Research & Development Authority, (Series 1985A), 4.70% TOBs (Long Island Lighting Co.)/(Deutsche Bank, AG LOC), Mandatory Tender 3/1/1996 A-1+ 2,000,000 -----------------------------------------------------
NEW YORK MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ----------------------------------------------------- -------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ NEW YORK--CONTINUED ----------------------------------------------------- $ 3,000,000 New York State Energy Research & Development Authority, (Series 1993A) Weekly VRDNs (Long Island Lighting Co.)/(Toronto-Dominion Bank LOC) VMIG1 $ 3,000,000 ----------------------------------------------------- 2,000,000 New York State Energy Research & Development Authority, 4.65% TOBs (New York State Electric and Gas Corp.)/(J.P. Morgan Delaware, Wilmington LOC), Optional Tender 3/15/1996 A-1+ 2,000,000 ----------------------------------------------------- 2,500,000 New York State HFA Weekly VRDNs (Special Surgery Hospital)/(Chemical Bank, New York LOC) VMIG1 2,500,000 ----------------------------------------------------- 4,000,000 New York State HFA, Housing Revenue Bonds (1985 Series A) Weekly VRDNs (Liberty View Apartments)/ (Chemical Bank, New York LOC) A-1 4,000,000 ----------------------------------------------------- 1,290,000 New York State Job Development Authority Weekly VRDNs (Sumitomo Bank Ltd., Osaka LOC) VMIG1 1,290,000 ----------------------------------------------------- 1,590,000 New York State Job Development Authority Weekly VRDNs (Sumitomo Bank Ltd., Osaka LOC) VMIG1 1,590,000 ----------------------------------------------------- 4,625,000 (a) New York State Medical Care Facilities Finance Agency, Hospital & Nursing Home Mortgage Revenue Bonds (1994 Series C) Weekly VRDNs (FHA INS)/(Merrill Lynch Capital Services, Inc. LIQ) A-1+ 4,625,000 ----------------------------------------------------- 3,700,000 (a) New York State Mortgage Agency, (Series PA-29) Weekly VRDNs (Merrill Lynch Capital Services, Inc. LIQ) VMIG1 3,700,000 ----------------------------------------------------- 4,945,000 (a) New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds (PA-87) Weekly VRDNs (Merrill Lynch Capital Services, Inc. LIQ) VMIG1 4,945,000 ----------------------------------------------------- 2,640,000 (a) New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds (Series PT-15B) Weekly VRDNs (Dai-Ichi Kangyo Bank Ltd., Tokyo LIQ) VMIG1 2,640,000 ----------------------------------------------------- 6,500,000 Niagara County, NY IDA Weekly VRDNs (Allegheny Ludlum Corp.)/(PNC Bank, N.A. LOC) A-1 6,500,000 -----------------------------------------------------
NEW YORK MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ----------------------------------------------------- -------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ NEW YORK--CONTINUED ----------------------------------------------------- $ 6,000,000 Niagara County, NY IDA, Solid Waste Disposal Facility Revenue Bonds (Series 1994B), 4.00% CP (American Ref- Fuel Company)/(Air Products & Chemicals, Inc. and Browning-Ferris Industries, Inc. GTDs), Mandatory Tender 12/8/1995 A-1 $ 6,000,000 ----------------------------------------------------- 9,900,000 Niagara County, NY IDA, Solid Waste Disposal Facility Revenue Bonds (Series 1994C), 3.90% CP (American Ref-Fuel Company)/(Air Products & Chemicals, Inc. and Browning-Ferris Industries, Inc. GTDs), Mandatory Tender 2/13/1996 A-1 9,900,000 ----------------------------------------------------- 6,000,000 Niagara County, NY IDA, Solid Waste Disposal Facility Revenue Bonds (Series 1994C), 4.00% CP (American Ref-Fuel Company)/(Air Products & Chemicals, Inc. and Browning-Ferris Industries, Inc. GTDs), Mandatory Tender 1/11/1996 A-1 6,000,000 ----------------------------------------------------- 1,010,000 North Hempstead, NY, (1995 Series B), 4.75% BANs, 4/25/1996 NR(3) 1,012,093 ----------------------------------------------------- 820,000 Onondaga County, NY IDA Weekly VRDNs (Beverage Corp.)/(Marine Midland Bank N.A., Buffalo, NY LOC) P-2 820,000 ----------------------------------------------------- 1,075,000 Onondaga County, NY IDA, (Series 1987) Weekly VRDNs (Southern Container Corp.)/(Chemical Bank, New York LOC) VMIG1 1,075,000 ----------------------------------------------------- 1,725,000 Onondaga County, NY Weekly VRDNs (Grainger (W.W.), Inc.) A-1+ 1,725,000 ----------------------------------------------------- 1,500,000 Ontario, NY IDA Weekly VRDNs (Hillcrest Enterprises/Buckeye Corrugated)/(National City Bank, Cleveland, OH LOC) P-1 1,500,000 ----------------------------------------------------- 5,700,000 Oswego County, NY IDA Weekly VRDNs (Copperweld Corp.)/(Credit Lyonnais, North America LOC) P-1 5,700,000 ----------------------------------------------------- 1,525,000 Perry Central School District, NY, 4.125% BANs, 6/21/1996 NR(3) 1,528,971 ----------------------------------------------------- 15,000,000 Port Authority of New York and New Jersey Weekly VRDNs A-1+ 15,000,000 ----------------------------------------------------- 15,000,000 Port Authority of New York and New Jersey Weekly VRDNs A-1+ 15,000,000 -----------------------------------------------------
NEW YORK MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ----------------------------------------------------- -------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ NEW YORK--CONTINUED ----------------------------------------------------- $ 1,000,000 Port Authority of New York and New Jersey, (Series 3) Weekly VRDNs (KIAC Partners)/(Deutsche Bank, AG LOC) P-1 $ 1,000,000 ----------------------------------------------------- 1,000,000 Rotterdam, NY IDA, (Series 1993A) Weekly VRDNs (Rotterdam Industrial Park)/(Chemical Bank, New York LOC) P-1 1,000,000 ----------------------------------------------------- 4,000,000 Saranac Central School District, NY, 4.50% BANs, 6/28/1996 NR(2) 4,016,394 ----------------------------------------------------- 650,817 Schenectady, NY IDA Weekly VRDNs (McClellan Street Associates)/(Ford Motor Credit Corp. 1994-A LIQ)/ (Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) P-1 650,817 ----------------------------------------------------- 3,000,000 Suffolk County, NY IDA Weekly VRDNs (C & J Realty Corp.)/(Ford Motor Credit Corp. 1994-A LIQ)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) P-1 3,000,000 ----------------------------------------------------- 509,167 Suffolk County, NY IDA Weekly VRDNs (CS Property/ Tara Toy, Inc.)/(Ford Motor Credit Corp. 1994-A LIQ)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) P-1 509,167 ----------------------------------------------------- 432,000 Suffolk County, NY IDA Weekly VRDNs (D.A. Yaron)/(Ford Motor Credit Corp. 1994-A LIQ)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) P-1 432,000 ----------------------------------------------------- 1,050,000 Suffolk County, NY IDA Weekly VRDNs (Poly Research Corp.)/(Marine Midland Bank N.A., Buffalo, NY LOC) P-2 1,050,000 ----------------------------------------------------- 1,800,000 Suffolk County, NY IDA, 5.6875% TOBs (Grainger (W.W.), Inc.), Optional Tender 12/1/1995 P-1 1,800,000 ----------------------------------------------------- 5,000,000 (a) VRDC/IVRC Trust, (Series 1992A) Weekly VRDNs (New York City Municipal Water Finance Authority)/(MBIA Insurance Corporation INS)/(HongKong & Shanghai Banking Corp. LIQ) A-1 5,000,000 ----------------------------------------------------- 7,000,000 (a) VRDC/IVRC Trust, (Series 1993B) Weekly VRDNs (New York Metropolitan Transportation Authority)/(AMBAC INS)/(HongKong & Shanghai Banking Corp. LIQ) A-1 7,000,000 ----------------------------------------------------- 7,500,000 Walden Village, NY IDA, IDRB (Series 1994) Weekly VRDNs (Spence Engineering Co.)/(First Union National Bank, Charlotte, N.C. LOC) P-1 7,500,000 -----------------------------------------------------
NEW YORK MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ----------------------------------------------------- -------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ NEW YORK--CONTINUED ----------------------------------------------------- $ 5,685,000 Warren & Washington Counties, NY IDA Weekly VRDNs (Sandy Hill Corp.)/(First Union National Bank, Charlotte, N.C. LOC) A-1 $ 5,685,000 ----------------------------------------------------- 1,415,000 Yates County, NY IDA, (Series 1992A) Weekly VRDNs (Clearplass Container)/(Fleet Bank of New York LOC) A-1 1,415,000 ----------------------------------------------------- 2,300,000 Yonkers, NY IDA, (Series 1992A) Weekly VRDNs (Consumers Union Facility)/(Industrial Bank of Japan Ltd., Tokyo LOC) VMIG1 2,300,000 ----------------------------------------------------- ------------ TOTAL 278,470,214 ----------------------------------------------------- ------------ PUERTO RICO--3.4% ----------------------------------------------------- 10,000,000 (a) Commonwealth of Puerto Rico, Public Improvement Refunding Bonds TOC (Series 1995B) Weekly VRDNs (MBIA Insurance Corporation INS)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LIQ) A-1 10,000,000 ----------------------------------------------------- ------------ TOTAL INVESTMENTS, AT AMORTIZED COST(B) $288,470,214 ----------------------------------------------------- ------------
Securities that are subject to Alternative Minimum Tax represent 34% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. These securities have been determined to be liquid under criteria established by the Board of Trustees. At the end of the period, these securities amounted to ($43,385,000) which represents 15% of net assets. (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($290,587,984) at October 31, 1995. NEW YORK MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronym(s) are used throughout this portfolio: AMBAC -- American Municipal Bond Assurance Corporation BANs -- Bond Anticipation Notes CP -- Commercial Paper FHA -- Federal Housing Administration GTDs -- Guarantees HFA -- Housing Finance Authority IDA -- Industrial Development Authority IDRB -- Industrial Development Revenue Bond INS -- Insured LIQ -- Liquidity Agreement LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance PLC -- Public Limited Company TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds TOC -- Tender Option Certificate VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------ Total investments in securities, at amortized cost and value $288,470,214 - ------------------------------------------------------------------------------ Cash 388,388 - ------------------------------------------------------------------------------ Income receivable 2,534,760 - ------------------------------------------------------------------------------ Receivable for shares sold 266 - ------------------------------------------------------------------------------ ------------ Total assets 291,393,628 - ------------------------------------------------------------------------------ LIABILITIES: - ------------------------------------------------------------------------------ Payable for shares redeemed $183,571 - ------------------------------------------------------------------- Income distribution payable 585,672 - ------------------------------------------------------------------- Accrued expenses 36,401 - ------------------------------------------------------------------- -------- Total liabilities 805,644 - ------------------------------------------------------------------------------ ------------ NET ASSETS for 290,593,593 shares outstanding $290,587,984 - ------------------------------------------------------------------------------ ------------ NET ASSETS CONSIST OF: - ------------------------------------------------------------------------------ Paid in capital $290,593,593 - ------------------------------------------------------------------------------ Accumulated net realized loss on investments (5,609) - ------------------------------------------------------------------------------ ------------ Total Net Assets $290,587,984 - ------------------------------------------------------------------------------ ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------ INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------ $276,149,176/276,155,517 shares outstanding $1.00 - ------------------------------------------------------------------------------ ------------ CASH II SHARES: - ------------------------------------------------------------------------------ $14,438,808/14,438,076 shares outstanding $1.00 - ------------------------------------------------------------------------------ ------------
(See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------------- Interest $13,386,966 - ---------------------------------------------------------------------------------------- EXPENSES: - ------------------------------------------------------------------------- Investment advisory fee $ 1,335,835 - ------------------------------------------------------------------------- Administrative personnel and services fee 252,807 - ------------------------------------------------------------------------- Custodian fees 88,001 - ------------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 53,726 - ------------------------------------------------------------------------- Directors'/Trustees' fees 5,982 - ------------------------------------------------------------------------- Auditing fees 19,781 - ------------------------------------------------------------------------- Legal fees 2,827 - ------------------------------------------------------------------------- Portfolio accounting fees 64,263 - ------------------------------------------------------------------------- Distribution services fee--Institutional Service Shares 690,979 - ------------------------------------------------------------------------- Distribution services fee--Cash II Shares 143,918 - ------------------------------------------------------------------------- Shareholder services fee--Institutional Service Shares 690,979 - ------------------------------------------------------------------------- Shareholder services fee--Cash II Shares 143,918 - ------------------------------------------------------------------------- Share registration costs 19,808 - ------------------------------------------------------------------------- Printing and postage 26,828 - ------------------------------------------------------------------------- Insurance premiums 8,298 - ------------------------------------------------------------------------- Miscellaneous 4,914 - ------------------------------------------------------------------------- ----------- Total expenses 3,552,864 - ------------------------------------------------------------------------- Waivers-- - ------------------------------------------------------------------------- Waiver of investment advisory fee $(351,948) - ------------------------------------------------------------- Waiver of distribution services fee--Institutional Service Shares (690,979) - ------------------------------------------------------------- Waiver of distribution services fee--Cash II Shares (130,887) - ------------------------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (477,927) - ------------------------------------------------------------- Waiver of shareholder services fee--Cash II Shares (13,031) - ------------------------------------------------------------- --------- Total waivers (1,664,772) - ------------------------------------------------------------------------- ----------- Net expenses 1,888,092 - ---------------------------------------------------------------------------------------- ----------- Net investment income 11,498,874 - ---------------------------------------------------------------------------------------- ----------- Net realized gain on investments 12,000 - ---------------------------------------------------------------------------------------- ----------- Change in net assets resulting from operations $11,510,874 - ---------------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, --------------------------------- 1995 1994 --------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------------ OPERATIONS-- - ------------------------------------------------------------ Net investment income $ 11,498,874 $ 7,881,134 - ------------------------------------------------------------ --------------- ------------- Net realized gain (loss) on investments 12,000 322 - ------------------------------------------------------------ --------------- ------------- Change in net assets resulting from operations 11,510,874 7,881,456 - ------------------------------------------------------------ --------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ------------------------------------------------------------ Distributions from net investment income - ------------------------------------------------------------ Institutional Service Shares (9,657,797) (5,630,675) - ------------------------------------------------------------ Cash II Shares (1,841,077) (2,250,459) - ------------------------------------------------------------ --------------- ------------- Change in net assets resulting from distributions to shareholders (11,498,874) (7,881,134) - ------------------------------------------------------------ --------------- ------------- SHARE TRANSACTIONS-- - ------------------------------------------------------------ Proceeds from sale of Shares 1,236,075,244 918,756,952 - ------------------------------------------------------------ Net asset value of Shares issued to shareholders in payment of distributions declared 3,314,165 2,705,999 - ------------------------------------------------------------ Cost of Shares redeemed (1,319,444,545) (884,074,127) - ------------------------------------------------------------ --------------- ------------- Change in net assets resulting from share transactions (80,055,136) 37,388,824 - ------------------------------------------------------------ --------------- ------------- Change in net assets (80,043,136) 37,389,146 - ------------------------------------------------------------ --------------- ------------- NET ASSETS: - ------------------------------------------------------------ Beginning of period 370,631,120 333,241,974 - ------------------------------------------------------------ --------------- ------------- End of period $ 290,587,984 $ 370,631,120 - ------------------------------------------------------------ --------------- -------------
(See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of New York Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers two classes of shares: Institutional Service Shares and Cash II Shares. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. At October 31, 1995, the Fund, for federal tax purposes, had a capital loss carryforward of $5,609, which will reduce the Fund's taxable income arising from future net realized gain on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
EXPIRATION YEAR EXPIRATION AMOUNT --------------------------------- --------------------------------- 1996 $5,609
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers in that NEW YORK MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 61% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or supported (backed) by a letter of credit for any one institution or agency do not exceed 7.6% of total investments. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1995 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST ---------------------------------------------------- ---------------- ---------------- New York State Dormitory Authority PA-60 (Series March 13, 1995 $ 5,475,000 1989B) New York State Medical Care Facilities Finance July 5, 1995 4,625,000 Agency New York State Mortgage Agency (Series PA-29) April 3, 1995 3,700,000 New York State Mortgage Agency (Series PA-87) July 5, 1995 4,945,000 New York State Mortgage Agency (Series PT-15B) July 5, 1995 2,640,000 VRDC/IVRC Trust (Series 1992A) New York City July 5, 1995 5,000,000 Municipal Water Finance Authority VRDC/IVRC Trust (Series 1993B) New York Metropolitan May 19, 1995 7,000,000 Transportation Authority Commonwealth of Puerto Rico, Public Improvement May 25, 1995 10,000,000 Refunding Bonds TOC (Series 1995b)
OTHER--Investment transactions are accounted for on the trade date. NEW YORK MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1995, capital paid-in aggregated $290,593,593. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, ------------------------------- INSTITUTIONAL SERVICE SHARES 1995 1994 - ------------------------------------------------------------- ------------- ------------- Shares sold 1,002,966,036 548,493,561 - ------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,484,402 758,005 - ------------------------------------------------------------- Shares redeemed (964,892,684) (587,029,347) - ------------------------------------------------------------- ------------- ------------- Net change resulting from Institutional Service share transactions 39,557,754 (37,777,781) - ------------------------------------------------------------- ------------- -------------
YEAR ENDED OCTOBER 31, ------------------------------- CASH II SHARES 1995 1994 - ------------------------------------------------------------- ------------- ------------- Shares sold 233,109,208 370,263,391 - ------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,829,763 1,947,994 - ------------------------------------------------------------- Shares redeemed (354,551,861) (297,044,780) - ------------------------------------------------------------- ------------- ------------- Net change resulting from Cash II share transactions (119,612,890) 75,166,605 - ------------------------------------------------------------- ------------- ------------- Net change resulting from share transactions (80,055,136) 37,388,824 - ------------------------------------------------------------- ------------- -------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will reimburse Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Institutional Service Shares and Cash II Shares. The Plan provides that the Fund may incur distribution expenses up to .25 of 1% of the average daily net assets of the Institutional Service Shares and Cash II Shares, annually, to reimburse FSC. NEW YORK MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- SHAREHOLDER SERVICE FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net assets of the Fund shares for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ")serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS--During the period ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common Officers. These transactions were made at current market value pursuant to rule 17a-7 under the Act amounting to $518,060,000 and $576,715,000 respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (New York Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of New York Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights (see pages 2 and 15 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the period ended October 31, 1993, and prior were audited by other auditors whose report dated December 17, 1993, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian and broker. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Minnesota Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 ADDRESSES - -------------------------------------------------------------------------------- New York Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 - ---------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - ---------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - ----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NEW YORK MUNICIPAL CASH TRUST INSTITUTIONAL SERVICE SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 CUSIP 314229741 G00208-01 (12/95) NEW YORK MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH II SHARES INSTITUTIONAL SERVICE SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectuses of New York Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal Trust ( the "Trust") dated December 31, 1995. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-235-4669. FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 Statement dated December 31, 1995 Federated Securities Corp. DISTRIBUTOR A SUBSIDIARY OF FEDERATED INVESTORS INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued And Delayed Delivery Transactions 1 Repurchase Agreements 2 Credit Enhancement 2 NEW YORK INVESTMENT RISKS 2 INVESTMENT LIMITATIONS 3 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 The Funds 9 Share Ownership 9 Trustees Compensation 10 Trustee Liability 10 INVESTMENT ADVISORY SERVICES 10 Investment Adviser 10 Advisory Fees 11 BROKERAGE TRANSACTIONS 11 OTHER SERVICES 11 Fund Administration 12 Custodian and Portfolio Recordkeeper 12 Transfer Agent 12 Independent Public Accountants12 SHAREHOLDER SERVICES AGREEMENT12 DETERMINING NET ASSET VALUE 12 REDEMPTION IN KIND 13 MASSACHUSETTS PARTNERSHIP LAW 13 THE FUND'S TAX STATUS 13 PERFORMANCE INFORMATION 13 Yield 13 Effective Yield 13 Tax-Equivalent Yield 13 Tax-Equivalency Table 14 Total Return 14 Performance Comparisons 15 ABOUT FEDERATED INVESTORS 15 Mutual Fund Market 15 Institutional Clients 15 Trust Organizations 15 Broker/Dealers and Bank Broker/Dealer Subsidiaries 16 APPENDIX 17 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security, the issuer of any demand feature applicable to the security, or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing participation interests having a seven day demand feature, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Board of Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of non-appropriation"); and any credit enhancement or legal recourse provided upon an event of non- appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1, or 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 rating categories. See "Regulatory Compliance." WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated on the Fund`s records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, brokers/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the "credit enhancer"), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. NEW YORK INVESTMENT RISKS The Fund invests in obligations of New York (the "State") issuers which result in the Fund's performance being subject to risks associated with the overall conditions present within the State. The following information is a general summary of the State's financial condition and a brief summary of the prevailing economic conditions. This information is based on official statements relating to securities that are believed to be reliable but should not be considered as a complete description of all relevant information. The State has achieved fiscal balance for the last few years after large deficits in the middle and late 1980's. Growing social service needs, education and Medicare expenditures have been the areas of largest growth while prudent program cuts and increases in revenues through service fees has enabled the state's budget to remain within balance for the last few years. While the state still has a large accumulated deficit as a percentage of its overall budget, the fiscal performance in recent years has demonstrated a changed political environment that has resulted in realistic revenue and expenditure projections to achieve financially favorable results. The state also benefits from a high level of per capita income that is well above the national average and from significant amounts of international trade. New York's economy is large and diverse. While several upstate counties benefit from agriculture, manufacturing and high technology industries, New York City nonetheless still dominates the State's economy through its international importance in economic sectors such as advertising, finance, and banking. The State's economy is projected to be weak through 1996, with state jobs growth of 0.4% well below the national level of 1.7%. State personal income growth is projected to be 4.2% while the U.S. projected growth rate is 5.0%. These numbers reflect an economic slowdown from 1995. New York's budget process has been historically characterized by contentious and protracted budget debates. New York State's fiscal 1996 budget, adopted 68 days late, distinguishes itself by reducing the actual level of General Fund expenditures, not merely reducing the rate of expenditure growth. In addition, tax reductions are phased in over the next three years. Balancing the budget in the wake of tax cuts makes the spending reduction plan even more critical. The plan faces serious implementation risks which leave it vulnerable to delays and shortfalls. Key to balancing this year's budget will be the coordination and timely implementation of substantive program changes within a complicated and geographically dispersed bureaucracy. The overall credit quality of the State is further demonstrated by its debt ratings. New York State maintains an A rating Moody's Investors Service, Inc. and Standard & Poor's Ratings Group rates the State A-. The Fund's concentration in municipal securities issued by the state and its political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. The ability of the state or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the state; and the underlying fiscal condition of the state, its counties, and its municipalities. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as may be necessary for clearance of transactions. BORROWING MONEY The Fund will not borrow money except as a temporary measure for extraordinary or emergency purposes and then only in amounts not in excess of 5% of its total assets or in an amount up to one-third of the value of its total assets, including the amount borrowed, in order to meet redemption requests without immediately selling portfolio instruments. This borrowing provision is not for investment leverage but solely to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio instruments would be inconvenient or disadvantageous. Interest paid on borrowed funds will serve to reduce the Fund's income. The Fund will liquidate any such borrowings as soon as possible and may not purchase any portfolio instruments while any borrowings are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding 10% of the value of its total assets at the time of the pledge. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, although it may invest in New York municipal securities secured by real estate or interests in real estate. INVESTING IN COMMODITIES AND MINERALS The Fund will not purchase or sell commodities, commodity contracts, or oil, gas, or other mineral exploration or development programs. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. MAKING LOANS The Fund will not make loans except that it may acquire publicly or non- publicly issued New York municipal securities, in accordance with its investment objective, policies, and limitations, and the Trust's Declaration of Trust. ACQUIRING SECURITIES The Fund will not acquire the voting securities of any issuer, except as part of a merger, consolidation, reorganization, or acquisition of assets. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not invest in securities issued by any other investment company or investment trust. INVESTMENTS IN ANY ONE ISSUER With respect to securities comprising 75% of its assets, the Fund will not invest more than 10% of its total assets in the securities of any one issuer. Under this limitation, each governmental subdivision, including states, territories, possessions of the United States, or their political subdivisions, agencies, authorities, instrumentalitites, or similar entities, will be considered a separate issuer if its assets and revenues are separate from those of the government body creating it and the security is backed only by its own assets and revenues. Industrial development bonds backed only by the assets and revenues of a nongovernmental user are considered to be issued solely by that user. If in the case of an industrial development bond or government issued security, a governmental or other entity guarantees the security, such guarantee would be considered a separate security issued by the guarantor, as well as the other issuer, subject to limited exclusions allowed by the Investment Company Act of 1940. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers (or in the alternative, guarantors, where applicable) which have records of less than three years of continuous operations, including the operation of any predecessor. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF THE TRUST The Fund will not purchase or retain the securities of any issuer if the Officers and Trustees of the Trust or its investment adviser, owning individually more than .50 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. INVESTING IN OPTIONS The Fund will not purchase puts, calls, straddles, spreads, or any combination of them, except that the Fund may purchase municipal securities accompanied by agreements of sellers to repurchase them at the Fund's option. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its total assets in illiquid securities, including repurchase agreements maturing in more than seven days. ISSUING SENIOR SECURITIES The Fund will not issue senior securities, except as permitted by the investment objective and policies and limitations of the Fund. The above limitations cannot be changed without shareholder approval. For purposes of the above limitations, the Fund considers 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 to be "cash items." Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments, as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its ability to participate in volume transactions will be to the benefit of the Fund. FEDERATED MUNICIPAL TRUST MANAGEMENT OFFICERS AND TRUSTEES ARE LISTED WITH THEIR ADDRESSES, BIRTHDATES, PRESENT POSITIONS WITH FEDERATED MUNICIPAL TRUST, AND PRINCIPAL OCCUPATIONS. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President of the Trust . Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds; formerly, Senior Partner, Ernst & Young LLP. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; President, Northgate Village Development Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Director, Trustee, or Managing General Partner of the Funds; formerly, President, Naples Property Management, Inc. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee, or Managing General Partner of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine and Member, Board of Trustees, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director, Trustee, or Managing General Partner of the Funds. Edward L. Flaherty, Jr.@ Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director, Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson * Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. and Federated Administrative Services. Peter E. Madden Seacliff 562 Bellevue Avenue Newport, RI Birthdate: March 16, 1942 Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, Trustee, or Managing General Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation. Gregor F. Meyer Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General Partner of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director, Trustee or Managing General Partner of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics and Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; founding Chairman, National Advisory Council for Environmental Policy and Technology and Federal Emergency Management Advisory Board. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/marketing consultant; Conference Coordinator, Non-profit entities; Director, Trustee, or Managing General Partner of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative Services, Federated Services Company, and Federated Shareholder Services; 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 of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. David M. Taylor Federated Investors Tower Pittsburgh, PA Birthdate: January 13, 1947 Treasurer Senior Vice President, Controller, and Trustee, Federated Investors; Controller, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., and Passport Research, Ltd.; Senior Vice President, Federated Shareholder Services; Vice President, Federated Administrative Services; Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President and Secretary Executive Vice President, Secretary, General Counsel, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds. * This Trustee is deemed to be an "interested person" as defined in the Investment Company Act of 1940, as amended. @ Member of the 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 As used in the table above, "The Funds" and "Funds" mean the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3- 5 Years; Federated U.S. Government Securities Fund: 5-10 Years; 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; 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 U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free Instruments Trust; Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The Virtus Funds; World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees own less than 1% of the Trust`s outstanding shares. As of December 4, 1995, the following shareholder(s) of record owned 5% or more of the outstanding Institutional Service Shares of New York Municipal Cash Trust: Fiduciary Trust Company International, New York, New York, owned approximately 51,028,500 shares (19.05%); Fleet Securities Corp., Rochester, New York, owned approximately 43,275,119 shares (15.06%); Society National Bank, Cleveland, Ohio, owned approximately 15,476,158 shares (5.38%); WESCO, Schenectady, New York, owned approximately 15,895,333 shares (5.53%) and Schneider Mills Inc., owned approximately 18,803,509 shares (6.54%). As of December 4, 1995, the following shareholder(s) of record owned 5% or more of the outstanding Cash II Shares of New York Municipal Cash Trust: Saul R. and Marion Klein Kramer, Garden City, New York, owned approximately 20,000,000 shares (52.25%); North Fork Bank and Trust Co, Mattituck, New York, owned approximately 3,178,564 shares (8.30%); Wayne D. Thornbrough, New York, New York, owned approximately 2,410,162 shares (6.29%); and Barrons Educational Series Inc., Hauppa, New York, owned approximately 2,153,572 shares (5.62%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID CORPORATION CORPORATION*# FROM FUND COMPLEX + John F. Donahue, $0 $0 for the Fund and Chairman and Director 68 other investment companies in the Fund Complex Thomas G. Bigley,$2,458 $20,688 for the Fund and Director 49 other investment companies in the Fund Complex John T. Conroy, $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex William J. Copeland, $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex James E. Dowd, $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex Lawrence D. Ellis, M.D., $3,266 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex Edward L. Flaherty, Jr., $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex Peter E. Madden, $2,757 $90,563 for the Fund and Director 64 other investment companies in the Fund Complex Gregor F. Meyer, $3,166 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex John E. Murray, Jr., $1,762 $0 for the Fund and Director 64 other investment companies in the Fund Complex Wesley W. Posvar,$3,166 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex Marjorie P. Smuts, $3,166 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1995. #The aggregate compensation is provided for the Trust which is comprised of 15 portfolios. +The information is provided for the last calendar year. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1995, 1994, and 1993, the adviser earned $1,335,835, $1,383,576, and $1,065,970, respectively, of which $351,948, $364,783, and $460,455, respectively, was voluntarily waived. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this 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 fees. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Board of Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Trust and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal years ended October 31, 1995, 1994, and 1993, the Trust paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc., also a subsidiary of Federated Investors, served as the Fund's Administrator. (For purposes of this Statement of Additional Information, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the "Administrators".) For the fiscal years ended October 31, 1995, 1994, and 1993, the Administrators earned $252,807, $292,612, and $329,428, respectively. Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, holds approximately 20% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. CUSTODIAN AND PORTFOLIO RECORDKEEPER State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. TRANSFER AGENT As transfer agent, Federated Services Company maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT 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 Directors expect that the Fund will be able to achieve a more predictable flow of cash for investment purposes and to meet redemptions. This will facilitate more efficient portfolio management and assist the Fund in 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; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal period ended October 31, 1995, payments in the amount of $143,918 and $690,979, respectively, were made pursuant to the Distribution Plan, on behalf of Cash II Shares and Institutional Service Shares, respectively, of which $130,887and $690,979, respectively, was waived. In addition, for this period, the Fund paid shareholder service fees in the amount of $143,918 and $690,979, respectively, on behalf of Cash II Shares and Institutional Service Shares, respectively, 13,031 and 477,927, respectively, was waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a- 7 (the "Rule") promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The Fund calculates its yield based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. For the seven-day period ended October 31, 1995, the yields for Institutional Service Shares and Cash II Shares were 3.52%, and 3.34%, respectively. EFFECTIVE YIELD The Fund calculates its effective yield by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended October 31, 1995, the effective yields for Institutional Service Shares and Cash II Shares were 3.58% and 3.39%, respectively. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal rate for individuals) and assuming that income is 100% exempt. For the seven-day period ended October 31, 1995, the tax-equivalent yields for Institutional Service Shares and Cash II Shares were 6.82% and 6.45%, respectively. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a "tax-free" investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1995 STATE OF NEW YORK TAX BRACKET: Combined Federal and State:22.875% 35.875% 38.875% 43.875% 47.475% Joint Return$1-39,000$39,001-94,250 $94,251-143,600$143,601-256,500 OVER $256,500 Single Return$1-23,350 $23,351-56,550$56,551-117,950$117,951- 256,500OVER $256,500 Tax-Exempt Yield Taxable Yield Equivalent 1.50% 1.94% 2.34% 2.45% 2.67% 2.86% 2.00 2.59 3.12 3.27 3.56 3.81 2.50 3.24 3.90 4.09 4.45 4.76 3.00 3.89 4.68 4.91 5.35 5.71 3.50 5.54 5.46 5.73 6.24 6.66 4.00 5.19 6.24 6.54 7.13 7.62 4.50 5.83 7.02 7.36 8.02 8.57 5.00 6.48 7.80 8.18 8.91 9.52 5.50 7.13 8.58 9.00 9.80 10.47 6.00 7.78 9.36 9.82 10.69 11.42 Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. If you itemize deductions, your taxable yield equivalent will be lower. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of Fund shares. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local income taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is compounded by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. The Fund's Institutional Service Shares average annual total returns for the one-year period ended October 31, 1995 and for the period from November 24, 1982 (date of initial public investment) through October 31, 1995 were 3.56% and 4.24%, respectively. The Fund's Cash II Shares average annual total returns for the one-year period ended October 31, 1995 and for the period from April 25, 1991 (date of initial public investment) through October 31, 1995 were 3.37% and 2.79%, respectively. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: O LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. o MONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1994, Federated Investors managed more than $31 billion in assets across approximately 43 money market funds, including 17 government, 8 prime and 18 municipal with assets approximating $17 billion, $7.4 billion and $6.6 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors's equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors's domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors's international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $2 trillion to the more than 5,500 funds available.* Federated Investors Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated Investors funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated Investors mutual funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms-- supported by more wholesalers than any other mutual fund distributor. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity concerns and market access risks unique to notes. SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus sign (+) designation. SP-2 Satisfactory capacity to pay principal and interest. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a variable rate demand feature. The first rating (long-term rating) addresses the likelihood of repayment of principal and interest when due, and the second rating (short-term rating) describes the demand characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A- 1. (The definitions for the long-term and the short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. LONG-TERM DEBT RATINGS AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. FLORIDA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH II SHARES PROSPECTUS The Cash II Shares of Florida Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Florida municipal securities, as well as securities of states, territories, and possessions of the United States which are not issued by or on behalf of Florida, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and which will enable the Fund to maintain an investment portfolio that will cause its shares to be exempt from the Florida intangibles tax, consistent with stability of principal and liquidity. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ GENERAL INFORMATION 2 - ------------------------------------------------------ INVESTMENT INFORMATION 2 - ------------------------------------------------------ Investment Objective 2 Investment Policies 2 Florida Municipal Securities 5 Investment Risks 5 Non-Diversification 6 Investment Limitations 6 FUND INFORMATION 6 - ------------------------------------------------------ Management of the Fund 6 Distribution of Cash II Shares 7 Administration of the Fund 8 Expenses of the Fund 8 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ Special Purchase Features 10 HOW TO REDEEM SHARES 10 - ------------------------------------------------------ Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 12 - ------------------------------------------------------ TAX INFORMATION 12 - ------------------------------------------------------ Federal Income Tax 12 State and Local Taxes 13 Florida Intangibles Tax 13 Florida State Municipal Taxation 13 OTHER CLASSES OF SHARES 14 - ------------------------------------------------------ PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SHARES 15 - ------------------------------------------------------ FINANCIAL STATEMENTS 16 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 28 - ------------------------------------------------------ ADDRESSES 29 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- CASH II SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).......................... None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)............... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable).......................................................................................... None Redemption Fee (as a percentage of amount redeemed, if applicable)..................................... None Exchange Fee........................................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of projected average net assets)* Management Fee (after waiver) (1)...................................................................... 0.00% 12b-1 Fee (after waiver) (2)........................................................................... 0.14% Total Other Expenses................................................................................... 0.51% Shareholder Services Fee.................................................................. 0.25% Total Fund Operating Expenses (3)............................................................ 0.65%
- ------------ (1) The management fee has been reduced to reflect the anticipated voluntary waiver of the management fee. The adviser can terminate this anticipated voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The maximum 12b-1 fee is 0.25%. (3) The total operating expenses are estimated to be 1.16% absent the anticipated voluntary waivers of the management fee and a portion of the 12b-1 fee. *Total operating expenses are estimated based on average expenses expected to be incurred during the period ending October 31, 1996. During the course of this period, expenses may be more or less than the average amount shown. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years - ------- ------ ------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period................................................ $7 $21
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS EXAMPLE IS BASED ON ESTIMATED DATA FOR CASH II SHARES FISCAL YEAR ENDING OCTOBER 31, 1996. GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The Fund is designed for retail customers of financial institutions as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term Florida municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Florida taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax consistent with stability of principal and liquidity and to maintain an investment portfolio that will cause its shares to be exempt from the Florida intangibles tax. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Florida municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, the Fund will invest so that at least 80% of its annual interest income will be exempt from federal regular income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Florida and its political subdivisions and financing authorities, as well as obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax ("Florida Municipal Securities "). Examples of Florida 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 debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Florida Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests, or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Florida Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable temporary investments, there is no current intention to do so. However, the interest from certain Florida Municipal Securities is subject to the federal alternative minimum tax. FLORIDA MUNICIPAL SECURITIES Florida Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Florida Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Florida Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Florida Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Florida Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Florida Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Florida Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Florida Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Florida Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, 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 assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund, up to the amount of the advisory fee, for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF CASH II SHARES Federated Securities Corp. is the principal distributor for Cash II Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"), the distributor may be paid a fee in an amount computed at an annual rate of .25 of 1% of the average daily net assets of Cash II Shares to finance any activity which is principally intended to result in the sale of Cash II 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 services or distribution-related 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 Cash II Shares under the Distribution Plan. In addition, the Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of Cash II Shares to obtain certain personal services for shareholders and the maintenance of shareholder accounts. Under the Shareholder Services Agreement, Federated Shareholders Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon Cash II Shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Distribution Plan and Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance will be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS ----------- ---------------------------------- .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. EXPENSES OF THE FUND The Fund pays all of its own expenses and its allocable share of Trust expenses. These expenses include, but are not limited to, the cost of: organizing the Trust and continuing its existence; Trustees' fees; investment advisory and administrative services; printing prospectuses and other documents for shareholders; registering the Trust, the Fund, and shares of the Fund; taxes and commissions; issuing, purchasing, repurchasing and redeeming shares; fees for custodians, transfer agents, dividend disbursing agents, shareholder servicing agents, and registrars; printing, mailing, auditing, accounting, and legal expenses; reports to shareholders and government agencies; meetings of Trustees and shareholders and proxy solicitations therefore; insurance premiums; association membership dues; and such non-recurring and extraordinary items as may arise. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of Cash II Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting total liabilities from total assets and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Florida Municipal Cash Trust, Cash II Shares ; Fund Number (this number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to Florida Municipal Cash Trust--Cash II Shares. Please include an account number on the check. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividned declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institution or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio, only shares of that portfolio are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Florida. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. FLORIDA INTANGIBLES TAX Shareholders of the Fund that are subject to the Florida intangibles tax will not be required to include the value of their Fund shares in their taxable intangible property if all of the Fund's investments on the annual assessment date are obligations that would be exempt from such tax if held directly by such shareholders, such as Florida and U.S. government obligations. As described earlier, the Fund will normally attempt to invest substantially all of its assets in securities which are exempt from the Florida intangibles tax. Accordingly, the value of the Fund shares held by a shareholder should under normal circumstances be exempt from the Florida intangibles tax. However, if the portfolio consists of any assets which are not so exempt on the annual assessment date, only the portion of the shares of the Fund which relate to securities issued by the United States and its possessions and territories will be exempt from the Florida intangibles tax, even if they partly relate to Florida tax exempt securities. FLORIDA STATE MUNICIPAL TAXATION In a majority of states that have an income tax, dividends paid by a mutual fund attributable to investments in a particular state's municipal obligations are exempt from both federal and such state's income tax. If Florida were to adopt an income tax in the future, and assuming that its income tax policy with respect to mutual funds investing in Florida state and local municipal obligations would be similar to the general tax policy of other states, dividends paid by the Fund would be exempt from Florida state income tax. A constitutional amendment approved by referendum would be required before an individual tax could be imposed. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers another class of shares. These shares are sold at net asset value primarily to financial institutions acting in an agency or fiduciary capacity and are subject to a minimum initial investment of $10,000 over a 90-day period. All classes are subject to certain of the same expenses. The shares are distributed under a 12b-1 Plan adopted by the Fund and also are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-235-4669. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield for shares. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. FLORIDA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 28.
YEAR ENDED PERIOD ENDED OCTOBER 31, OCTOBER 31, 1995 1994(A) ----------- ------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.000 - -------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------------------------------------------- Net investment income 0.04 0.004 - -------------------------------------------------------------------------- LESS DISTRIBUTIONS - -------------------------------------------------------------------------- Distributions from net investment income (0.04) (0.004) - -------------------------------------------------------------------------- ------ ------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.000 - -------------------------------------------------------------------------- ------ ------- TOTAL RETURN (b) 3.60% 0.35% - -------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------------------------------------------- Expenses 0.45% 0.28%* - -------------------------------------------------------------------------- Net investment income 3.58% 3.28%* - -------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.42% 1.03%* - -------------------------------------------------------------------------- SUPPLEMENTAL DATA - -------------------------------------------------------------------------- Net assets, end of period (000 omitted) $153,347 $53,966 - --------------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from September 21, 1994 (date of initial public investment) to October 31, 1994. For the period from September 12, 1994 (start of business) to September 21, 1994 the Fund had no investment activity. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) FLORIDA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------- ---------------------------------------------------------------------- --------- -------------- SHORT-TERM MUNICIPAL SECURITIES--99.4% - ------------------------------------------------------------------------------------- FLORIDA--96.4% ---------------------------------------------------------------------- $ 2,400,000 Alachua County, FL Health Facilities Authority, Health Facility Revenue Bonds (Series 1991) Weekly VRDNs (North Florida Retirement Village)/(Kredietbank N.V., Brussels LOC) A-1 $ 2,400,000 ---------------------------------------------------------------------- 780,000 Broward County, FL Health Facility Authority, Revenue Bonds Weekly VRDNs (John Knox Village of Florida)/(First Union National Bank, Charlotte, N.C. LOC) P-1 780,000 ---------------------------------------------------------------------- 8,000,000 Charlotte County, FL School District, TANS (Series 1995), 3.90% TANs, 6/30/1996 MIG1 8,007,668 ---------------------------------------------------------------------- 3,000,000 Clay County, FL Development Authority, IDRB (Series 1994) Weekly VRDNs (Carlisle Corporation Project)/(Trust Company Bank, Atlanta LOC) P-1 3,000,000 ---------------------------------------------------------------------- 2,000,000 Dade County, FL IDA, IDRB (Series 1995) Weekly VRDNs (June Leasing Co. Project (FL))/(First Union National Bank of Florida LOC) A-1 2,000,000 ---------------------------------------------------------------------- 11,500,000 Dade County, FL Water & Sewer System Weekly VRDNs (FGIC INS)/(Industrial Bank of Japan Ltd., Tokyo LIQ) A-1 11,500,000 ---------------------------------------------------------------------- 4,000,000 Florida Municipal Loan Council, (Series 1985-1), 3.90% CP (Florida League of Cities)/(Sumitomo Bank Ltd., Osaka LOC), Mandatory Tender 12/1/1995 A-1 4,000,000 ---------------------------------------------------------------------- 5,375,000 Florida State Board of Education Administration, (CR55D), 4.00% TOBs (Citibank NA, New York LIQ), Optional Tender 12/1/1995 AA 5,375,000 ---------------------------------------------------------------------- 6,000,000 Greater Orlando (FL) Aviation Authority, Airport Facilities Subordinated CP Notes (Series B), 3.90% CP, Mandatory Tender 11/28/1995 P-1 6,000,000 ---------------------------------------------------------------------- $ 3,000,000 Hillsborough County, FL Aviation Authority, Bond Anticipation Commercial Paper Notes, 3.85% CP (Tampa International Airport)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 12/7/1995 A-1+ $ 3,000,000 ----------------------------------------------------------------------
FLORIDA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------- ---------------------------------------------------------------------- --------- -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------------- FLORIDA--CONTINUED ---------------------------------------------------------------------- 2,000,000 Hillsborough County, FL IDA Weekly VRDNs (Ringhager Equipment Co.)/(Mellon Bank NA, Pittsburgh LOC) P-1 2,000,000 ---------------------------------------------------------------------- 2,300,000 Hillsborough County, FL IDA, (Series 1992) Weekly VRDNs (SIFCO Turbine Component Service)/(National City Bank, Cleveland, OH LOC) P-1 2,300,000 ---------------------------------------------------------------------- 2,250,000 Indian River County School District, FL, TANS (Series 1995), 4.00% TANs, 6/30/1996 NR 2,252,780 ---------------------------------------------------------------------- 1,100,000 Jacksonville, FL Weekly VRDNs (Metal Sales)/(National City Bank, Kentucky LOC) P-1 1,100,000 ---------------------------------------------------------------------- 1,000,000 Jacksonville, FL, Hospital Revenue Bonds (Series 1989) Weekly VRDNs (Baptist Medical Center, AL)/(First Union National Bank, Charlotte, N.C. LOC) VMIG1 1,000,000 ---------------------------------------------------------------------- 4,300,000 Key West, FL Community Redevelopment Authority Weekly VRDNs (Pier House Joint Venture)/(PNC Bank, N.A. LOC) P-1 4,300,000 ---------------------------------------------------------------------- 4,000,000 Lake Shore, FL Hospital Authority, Health Facilities Revenue Bonds (Series 1991) Weekly VRDNs (Lake Shore Hospital)/(Kredietbank N.V., Brussels LOC) P-1 4,000,000 ---------------------------------------------------------------------- 2,860,000 Lee County, FL IDA, (Series 1985) Weekly VRDNs (Christian & Missionary Alliance Foundation)/(Banque Paribas, Paris LOC) P-1 2,860,000 ---------------------------------------------------------------------- 1,000,000 Lee County, FL IDA, Health Care Facilities Revenue Bonds Weekly VRDNs (Hope Hospice Project)/(Sun Bank NA, Orlando LOC) VMIG1 1,000,000 ---------------------------------------------------------------------- 1,000,000 Lee County, FL IDA, IDRB (Series 1994) Weekly VRDNs (Baader North America Corporation)/(Deutsche Bank, AG LOC) VMIG1 1,000,000 ---------------------------------------------------------------------- $ 300,000 Manatee County, FL HFA Weekly VRDNs (Carriage Club)/ (Mellon Bank NA, Pittsburgh LOC) VMIG1 $ 300,000 ----------------------------------------------------------------------
FLORIDA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------- ---------------------------------------------------------------------- --------- -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------------- FLORIDA--CONTINUED ---------------------------------------------------------------------- 1,000,000 Marion County, FL Health Facility Authority, Floating Rate Demand Multifamily Revenue Bonds (1985 Series F) Weekly VRDNs (Paddock Place Project)/(Trust Company Bank, Atlanta LOC) A-1 1,000,000 ---------------------------------------------------------------------- 3,250,000 Marion County, FL IDA, IDRB (Series 1989) Weekly VRDNs (Charter Springs Hospital, Inc.)/(Bankers Trust Co., New York LOC) A1 3,250,000 ---------------------------------------------------------------------- 4,500,000 Martin County, FL School District, District Operating Millage Tax Anticipation Notes (Series 1995), 4.25% TANs, 6/8/1996 NR 4,510,414 ---------------------------------------------------------------------- 4,000,000 Miami, FL, TANS, (Series 1995), 4.50% TANs, 9/27/1996 SP-1+ 4,024,380 ---------------------------------------------------------------------- 2,000,000 Ocean Highway and Port Authority, Adjustable Demand Revenue Bonds (Series 1990) Weekly VRDNs (ABN AMRO Bank N.V., Amsterdam LOC) Aa1 2,000,000 ---------------------------------------------------------------------- 2,000,000 Orange County, FL HFA, Multifamily Housing Revenue Bonds Weekly VRDNs (Sutton Place. Ltd. Project)/ (Nationsbank of Maryland, N.A. LOC) A-1+ 2,000,000 ---------------------------------------------------------------------- 8,000,000 Orange County, FL School District, TANS (Series 1995), 4.50% TANs, 10/16/1996 SP-1+ 8,051,563 ---------------------------------------------------------------------- 1,000,000 Orange County, FL, Health Facilities Authority Weekly VRDNs (Mayflower Retirement Community)/(Rabobank Nederland, Utrecht LOC) A-1 1,000,000 ---------------------------------------------------------------------- 4,500,000 Palm Beach County, FL, Variable Rate Demand Revenue Bonds, (Series 1995) Weekly VRDNs (Norton Gallery and School of Art, Inc. Project)/(Northern Trust Co., Chicago, IL LOC) AA- 4,500,000 ---------------------------------------------------------------------- 5,500,000 Pasco County, FL School District, TANS (Series 1995), 3.90% TANs, 6/30/1996 MIG1 5,503,535 ---------------------------------------------------------------------- $ 3,500,000 Pinellas County Industry Council, FL, IDRB (Series 1994) Weekly VRDNs (Genca Corporation Project)/(PNC Bank, Ohio, N.A. LOC) A-1 $ 3,500,000 ----------------------------------------------------------------------
FLORIDA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------- ---------------------------------------------------------------------- --------- -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------------- FLORIDA--CONTINUED ---------------------------------------------------------------------- 1,700,000 Pinellas County, FL Health Facility Authority Daily VRDNs (Chemical Bank, New York LOC) A-1 1,700,000 ---------------------------------------------------------------------- 1,000,000 Pinellas County, FL Health Facility Authority, (Series 1987) Weekly VRDNs (St. Mark Village Project)/(Nationsbank of Florida, N.A. LOC) A-1 1,000,000 ---------------------------------------------------------------------- 3,200,000 Pinellas County, FL Health Facility Authority, Single Family Mortgage Revnue Bonds (Series PA-92) Weekly VRDNs (GNMA COL)/(Merrill Lynch Capital Services, Inc. LIQ) A-1+ 3,200,000 ---------------------------------------------------------------------- 3,800,000 Sarasota County, FL IDRB, (Series 1994) Monthly VRDNs (Resource Recovery Systems of Sarasota Project)/(Fleet National Bank, Providence, R.I. LOC) A-1 3,800,000 ---------------------------------------------------------------------- 4,800,000 Seminole County, FL Health Facility Authority IDA, (Series 1991) Weekly VRDNs (Florida Living Nursing Center)/ (Barnett Bank of Central Florida, Orlando LOC) VMIG1 4,800,000 ---------------------------------------------------------------------- 4,500,000 Southeast Volusia Hospital District, Revenue Bonds (Series 1995) Weekly VRDNs (Bert Fish Medical Center (FL))/ (SouthTrust Bank of Alabama, Birmingham LOC) A-1 4,500,000 ---------------------------------------------------------------------- 4,000,000 St. Lucie County, FL PCR, (Series 94A), 3.70% CP (Florida Power & Light Co.), Mandatory Tender 11/21/1995 A-1 4,000,000 ---------------------------------------------------------------------- 845,000 St. Lucie County, FL, IDR Bonds (Series 1985) Weekly VRDNs (Savannahs Hospital)/(Nationsbank of Georgia, N.A. LOC) P-1 845,000 ---------------------------------------------------------------------- 1,450,000 Sumter County, FL IDA Weekly VRDNs (Great Southern Wood of Florida)/(SouthTrust Bank of Alabama, Birmingham LOC) VMIG1 1,450,000 ---------------------------------------------------------------------- 7,500,000 Suwannee County, FL, (Series 1989) Weekly VRDNs (Advent Christian Village Project)/(Barnett Bank of Jacksonville LOC) VMIG1 7,500,000 ---------------------------------------------------------------------- $ 4,000,000 Titusville, FL, Multi-Purpose Revenue Bonds, Installment 1995A Weekly VRDNs (Banque Paribas, Paris LOC) VMIG1 $ 4,000,000 ---------------------------------------------------------------------- 1,675,000 Volusia County, FL IDA Weekly VRDNs (Crane Cams)/ (First Interstate Bank of Arizona, NA LOC) P-1 1,675,000 ----------------------------------------------------------------------
FLORIDA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------- ---------------------------------------------------------------------- --------- -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------------- FLORIDA--CONTINUED ---------------------------------------------------------------------- 1,900,000 Volusia County, FL IDA, (Series 1994) Weekly VRDNs (Southern States Utilities, Inc.)/(Sun Bank NA, Orlando LOC) VMIG1 1,900,000 ---------------------------------------------------------------------- -------------- Total 147,885,340 ---------------------------------------------------------------------- -------------- ALABAMA--2.3% ---------------------------------------------------------------------- 3,500,000 Mobile, AL IDB, (1994 Series A), 4.05% TOBs (International Paper Co.), Mandatory Tender 12/1/1995 A-2 3,500,138 ---------------------------------------------------------------------- -------------- PUERTO RICO--0.7% ---------------------------------------------------------------------- 1,000,000 Puerto Rico Government Development Bank Weekly VRDNs (Credit Suisse, Zurich LOC) A-1+ 1,000,000 ---------------------------------------------------------------------- -------------- TOTAL INVESTMENTS, AT AMORTIZED COST(A) $ 152,385,478 ---------------------------------------------------------------------- --------------
Securities that are subject to Alternative Minimum Tax represent 22.5% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($153,346,518) at October 31, 1995. The following acronym(s) are used throughout this portfolio: COL--Collateralized CP--Commercial Paper FGIC--Financial Guaranty Insurance Company GNMA--Government National Mortgage Association HFA--Housing Finance Authority IDA--Industrial Development Authority IDB--Industrial Development Bond IDR--Industrial Development Revenue IDRB--Industrial Development Revenue Bond INS--Insured LIQ--Liquidity Agreement FLORIDA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- LOC--Letter of Credit PCR--Pollution Control Revenue PLC--Public Limited Company TANs--Tax Anticipation Notes TOBs--Tender Option Bonds VRDNs--Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) FLORIDA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - --------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $ 152,385,478 - ------------------------------------------------------------------------------------------------- Cash 344,475 - ------------------------------------------------------------------------------------------------- Income receivable 855,048 - ------------------------------------------------------------------------------------------------- Deferred expenses 32,212 - ------------------------------------------------------------------------------------------------- -------------- Total assets 153,617,213 - ------------------------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------------------------- Income distribution payable $ 202,994 - --------------------------------------------------------------------------------- Accrued expenses 67,701 - --------------------------------------------------------------------------------- -------------- Total liabilities 270,695 - ------------------------------------------------------------------------------------------------- -------------- NET ASSETS for 153,346,518 shares outstanding $ 153,346,518 - ------------------------------------------------------------------------------------------------- -------------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------------------------- $153,346,518 / 153,346,518 shares outstanding $ 1.00 - ------------------------------------------------------------------------------------------------- --------------
(See Notes which are an integral part of the Financial Statements) FLORIDA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------------------------- Interest $ 5,271,986 - ---------------------------------------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------------------------------------- Investment advisory fee $ 522,992 - -------------------------------------------------------------------------------------- Administrative personnel and services fee 125,000 - -------------------------------------------------------------------------------------- Custodian fees 27,209 - -------------------------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 12,115 - -------------------------------------------------------------------------------------- Directors'/Trustees' fees 1,280 - -------------------------------------------------------------------------------------- Auditing fees 9,750 - -------------------------------------------------------------------------------------- Legal fees 2,290 - -------------------------------------------------------------------------------------- Portfolio accounting fees 39,547 - -------------------------------------------------------------------------------------- Shareholder services fee 326,870 - -------------------------------------------------------------------------------------- Share registration costs 35,917 - -------------------------------------------------------------------------------------- Printing and postage 20,880 - -------------------------------------------------------------------------------------- Insurance premiums 5,295 - -------------------------------------------------------------------------------------- Miscellaneous 2,341 - -------------------------------------------------------------------------------------- ------------ Total expenses 1,131,486 - -------------------------------------------------------------------------------------- Waivers-- - -------------------------------------------------------------------------------------- Waiver of investment advisory fee $ (480,076) - ------------------------------------------------------------------------- Waiver of shareholder services fee (62,831) - ------------------------------------------------------------------------- ----------- Total waivers (542,907) - -------------------------------------------------------------------------------------- ------------ Net expenses 588,579 - ---------------------------------------------------------------------------------------------------- ------------ Net investment income $ 4,683,407 - ---------------------------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) FLORIDA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED OCTOBER 31, 1995 OCTOBER 31, 1994(A) - --------------------------------------------------------------------- -------------------- ---------------------- INCREASE (DECREASE) IN NET ASSETS: - --------------------------------------------------------------------- OPERATIONS-- - --------------------------------------------------------------------- Net investment income $ 4,683,407 $ 165,156 - --------------------------------------------------------------------- -------------------- ---------------------- DISTRIBUTIONS TO SHAREHOLDERS-- - --------------------------------------------------------------------- Distributions from net investment income (4,683,407) (165,156) - --------------------------------------------------------------------- -------------------- ---------------------- SHARE TRANSACTIONS-- - --------------------------------------------------------------------- Proceeds from sale of shares 1,361,774,097 134,110,437 - --------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,166,363 92,846 - --------------------------------------------------------------------- Cost of shares redeemed (1,264,560,129) (80,237,096) - --------------------------------------------------------------------- -------------------- ---------------------- Change in net assets resulting from share transactions 99,380,331 53,966,187 - --------------------------------------------------------------------- -------------------- ---------------------- Change in net assets 99,380,331 53,966,187 - --------------------------------------------------------------------- NET ASSETS: - --------------------------------------------------------------------- Beginning of period 53,966,187 -- - --------------------------------------------------------------------- -------------------- ---------------------- End of period $ 153,346,518 $ 53,966,187 - --------------------------------------------------------------------- -------------------- ----------------------
(a) For the period from September 12, 1994 (start of business) to October 31, 1994. (See Notes which are an integral part of the Financial Statements) FLORIDA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Florida Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 66.4% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or supported (backed) by a letter of credit for any one institution or agency does not exceed 7.5% of total investments. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). At October 31, 1995, capital paid-in aggregated $153,346,518. Transactions in shares were as follows:
YEAR ENDED PERIOD ENDED OCTOBER 31, 1995 OCTOBER 31, 1994(A) - -------------------------------------------------------------------- -------------------- ---------------------- Shares sold 1,361,774,097 134,110,437 - -------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 2,166,363 92,846 - -------------------------------------------------------------------- Shares redeemed (1,264,560,129) (80,237,096) - -------------------------------------------------------------------- -------------------- ---------------------- Net change resulting from share transactions 99,380,331 53,966,187 - -------------------------------------------------------------------- -------------------- ----------------------
(a) For the period from September 12, 1994 (start of business) to October 31, 1994. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's shares. The Plan provides that the Fund may incur distribution expenses up to .25 of 1% of the average daily net assets of the Fund shares, annually, to compensate FSC. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net assets of the Fund for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses of $15,374 were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organizational expenses during the five year period following the effective date. For the period ended October 31, 1995, the Fund paid $1,110 pursuant to this agreement. INTERFUND TRANSACTIONS--During the year ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment, common Directors/Trustees, and/ or common Officers. These transactions were made at current market value pursuant to Rule 17a-7 under the Act amounting to $788,505,000 and $785,600,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. (5) SUBSEQUENT EVENT Effective November 17, 1995 the Fund added an additional class of shares called Cash II Shares. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Florida Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Florida Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets and the financial highlights (see page 15 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Florida Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 ADDRESSES - -------------------------------------------------------------------------------- Florida Municipal Cash Trust Cash II Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 - --------------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - --------------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - ---------------------------------------------------------------------------------------------------------------------
FLORIDA MUNICIPAL CASH TRUST CASH II SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 [LOGO]FEDERATED SECURITIES CORP. --------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 CUSIP 314229683 - -------------------------------------------------------------------------------- FLORIDA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS The Institutional Shares of Florida Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Florida municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Florida, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and which will enable the Fund to maintain an investment portfolio that will cause its shares to be exempt from the Florida intangibles tax consistent with stability of principal and liquidity. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - -------------------------------------------------- FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 2 - -------------------------------------------------- GENERAL INFORMATION 3 - -------------------------------------------------- INVESTMENT INFORMATION 3 - -------------------------------------------------- Investment Objective 3 Investment Policies 3 Florida Municipal Securities 6 Investment Risks 6 Non-Diversification 7 Investment Limitations 7 FUND INFORMATION 7 - -------------------------------------------------- Management of the Fund 7 Distribution of Institutional Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - -------------------------------------------------- HOW TO PURCHASE SHARES 10 - -------------------------------------------------- Special Purchase Features 10 HOW TO REDEEM SHARES 11 - -------------------------------------------------- Special Redemption Features 12 ACCOUNT AND SHARE INFORMATION 12 - -------------------------------------------------- TAX INFORMATION 13 - -------------------------------------------------- Federal Income Tax 13 State and Local Taxes 14 Florida Intangibles Tax 14 Florida State Municipal Taxation 14 OTHER CLASSES OF SHARES 14 - -------------------------------------------------- PERFORMANCE INFORMATION 15 - -------------------------------------------------- FINANCIAL STATEMENTS 16 - -------------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 28 - -------------------------------------------------- ADDRESSES 29 - --------------------------------------------------
I SUMMARY OF FUND EXPENSES - --------------------------------------------------------------------------------
INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................... None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)....................................................................... None Redemption Fee (as a percentage of amount redeemed, if applicable)............................... None Exchange Fee..................................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)................................................................ 0.00% 12b-1 Fee (2).................................................................................... 0.00% Total Other Expenses............................................................................. 0.49% Shareholder Services Fee (after waiver) (3)......................................... 0.20% Total Operating Expenses (4)............................................................. 0.49%
(1) The management fee has been reduced to reflect the voluntary waiver of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The Fund has no present intention of paying or accruing the 12b-1 fee during the fiscal year ending October 31, 1996. If the Fund were paying or accruing the 12b-1 fee, the Fund would be able to pay up to 0.25% of its average daily net assets for the 12b-1 fee. See "Fund Information". (3) The maximum shareholder services fee is 0.25%. (4) The total operating expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1996. The total operating expenses were 0.45% for the fiscal year ended October 31, 1995 and would have been 0.87% absent the voluntary waivers of a portion of the management fee and a portion of the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ----------------------------------------------------------------- --------- --------- --------- --------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period................................................. $5 $16 $27 $62
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 1 FLORIDA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 28.
YEAR ENDED PERIOD ENDED OCTOBER 31, OCTOBER 31, 1995 1994(a) - ----------------------------------------------------- ------------ ------------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.000 - ----------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------------------- Net investment income 0.04 0.004 - ----------------------------------------------------- LESS DISTRIBUTIONS - ----------------------------------------------------- Distributions from net investment income (0.04) (0.004) - ----------------------------------------------------- ------------ ------------- NET ASSET VALUE, END OF PERIOD $1.00 $1.000 - ----------------------------------------------------- ------------ ------------- ------------ ------------- TOTAL RETURN (b) 3.60% 0.35% - ----------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------------------- Expenses 0.45% 0.28%* - ----------------------------------------------------- Net investment income 3.58% 3.28%* - ----------------------------------------------------- Expense waiver/reimbursement (c) 0.42% 1.03%* - ----------------------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------------------- Net assets, end of period (000 omitted) $153,347 $53,966 - -----------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from September 21, 1994 (date of initial public investment) to October 31, 1994. For the period from September 12, 1994 (start of business) to September 21, 1994 the Fund had no investment activity. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) 2 GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Trustees have established two classes of shares known as Institutional Shares and Cash II Shares. This prospectus relates only to Institutional Shares of the Fund, which are designed for financial institutions acting in an agency or fiduciary capacity as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term Florida municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Florida taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax consistent with stability of principal and liquidity and to maintain an investment portfolio that will cause its shares to be exempt from the Florida intangibles tax. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Florida municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, the Fund will invest so that at least 80% of its annual interest income will be exempt from federal regular income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Florida and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of 3 qualified legal counsel, exempt from federal regular income tax. ("Florida Municipal Securities"). Examples of Florida 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 debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Florida Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Florida Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. 4 The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). 5 Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Florida Municipal Securities is subject to the federal alternative minimum tax. FLORIDA MUNICIPAL SECURITIES Florida Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Florida Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Florida Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Florida Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Florida Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Florida Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Florida Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Florida Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Florida Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. 6 NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, 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 assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of 7 Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"), the distributor may be paid a fee in an amount computed at an annual rate of .25 of 1% of the average daily net assets of Institutional Shares to finance any activity which is principally intended to result in the sale of Institutional 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 services or distribution-related 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 Institutional Shares under the Distribution Plan. 8 In addition, the Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of Institutional Shares to obtain certain personal services for shareholders and the maintenance of shareholder accounts. Under the Shareholder Services Agreement, Federated Shareholders Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon Institutional Shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Distribution Plan and Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance will be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS -------------------- ------------------------------------ .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of its Institutional Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting total liabilities from total assets and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. 9 The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Florida Municipal Cash Trust ; Fund Number (this number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to Florida Municipal Cash Trust. Please include an account number on the check. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and 10 invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the 11 dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the checkwriting program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. 12 ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio, only shares of that portfolio are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. 13 STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Florida. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. FLORIDA INTANGIBLES TAX Shareholders of the Fund that are subject to the Florida intangibles tax will not be required to include the value of their Fund shares in their taxable intangible property if all of the Fund's investments on the annual assessment date are obligations that would be exempt from such tax if held directly by such shareholders, such as Florida and U.S. government obligations. As described earlier, the Fund will normally attempt to invest substantially all of its assets in securities which are exempt from the Florida intangibles tax. Accordingly, the value of the Fund shares held by a shareholder should under normal circumstances be exempt from the Florida intangibles tax. However, if the portfolio consists of any assets which are not so exempt on the annual assessment date, only the portion of the shares of the Fund which relate to securities issued by the United States and its possessions and territories will be exempt from the Florida intangibles tax, even if they partly relate to Florida tax exempt securities. FLORIDA STATE MUNICIPAL TAXATION In a majority of states that have an income tax, dividends paid by a mutual fund attributable to investments in a particular state's municipal obligations are exempt from both federal and such state's income tax. If Florida were to adopt an income tax in the future, and assuming that its income tax policy with respect to mutual funds investing in Florida state and local municipal obligations would be similar to the general tax policy of other states, dividends paid by the Fund would be exempt from Florida state income tax. A constitutional amendment approved by referendum would be required before an individual tax could be imposed. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers another class of shares called Cash II Shares. Cash II Shares are sold at net asset value primarily to retail customers of financial institutions and are subject to a minimum initial investment of $10,000 over a 90-day period. All classes are subject to certain of the same expenses. Cash II Shares are distributed under a 12b-1 Plan adopted by the Fund and also are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-235-4669. 14 PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield for shares. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. 15 FLORIDA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - -------------- ------------------------------------------------------------ ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--99.4% - ------------------------------------------------------------------------------- FLORDIA--96.4% ------------------------------------------------------------ $2,400,000 Alachua County, FL Health Facilities Authority, Health Facility Revenue Bonds (Series 1991) Weekly VRDNs (North Florida Retirement Village)/(Kredietbank, N.V., Brussels LOC) A-1 $ 2,400,000 ------------------------------------------------------------ 780,000 Broward County, FL Health Facility Authority, Revenue Bonds Weekly VRDNs (John Knox Village of Florida)/(First Union National Bank, Charlotte, N.C. LOC) P-1 780,000 ------------------------------------------------------------ 8,000,000 Charlotte County, FL School District, TANS (Series 1995), 3.90% TANs, 6/30/1996 MIG1 8,007,668 ------------------------------------------------------------ 3,000,000 Clay County, FL Development Authority, IDRB (Series 1994) Weekly VRDNs (Carlisle Corporation Project)/(Trust Company Bank, Atlanta LOC) P-1 3,000,000 ------------------------------------------------------------ 2,000,000 Dade County, FL IDA, IDRB (Series 1995) Weekly VRDNs (June Leasing Co. Project (FL))/(First Union National Bank of Florida LOC) A-1 2,000,000 ------------------------------------------------------------ 11,500,000 Dade County, FL Water & Sewer System Weekly VRDNs (FGIC INS)/(Industrial Bank of Japan Ltd., Tokyo LIQ) A-1 11,500,000 ------------------------------------------------------------ 4,000,000 Florida Municipal Loan Council, (Series 1985-1), 3.90% CP (Florida League of Cities)/(Sumitomo Bank Ltd., Osaka LOC), Mandatory Tender 12/1/1995 A-1 4,000,000 ------------------------------------------------------------ 5,375,000 Florida State Board of Education Administration, (CR55D), 4.00% TOBs (Citibank NA, New York LIQ), Optional Tender 12/1/1995 AA 5,375,000 ------------------------------------------------------------ 6,000,000 Greater Orlando (FL) Aviation Authority, Airport Facilities Subordinated CP Notes (Series B), 3.90% CP, Mandatory Tender 11/28/1995 P-1 6,000,000 ------------------------------------------------------------
16 FLORIDA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - -------------- ------------------------------------------------------------ ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------- FLORIDA--CONTINUED ------------------------------------------------------------ $3,000,000 Hillsborough County, FL Aviation Authority, Bond Anticipation Commercial Paper Notes, 3.85% CP (Tampa International Airport)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 12/7/1995 A-1+ $ 3,000,000 ------------------------------------------------------------ 2,000,000 Hillsborough County, FL IDA Weekly VRDNs (Ringhager Equipment Co.)/(Mellon Bank NA, Pittsburgh LOC) P-1 2,000,000 ------------------------------------------------------------ 2,300,000 Hillsborough County, FL IDA, (Series 1992) Weekly VRDNs (SIFCO Turbine Component Service)/(National City Bank, Cleveland, OH LOC) P-1 2,300,000 ------------------------------------------------------------ 2,250,000 Indian River County School District, FL, TANS (Series 1995), 4.00% TANs, 6/30/1996 NR 2,252,780 ------------------------------------------------------------ 1,100,000 Jacksonville, FL Weekly VRDNs (Metal Sales)/(National City Bank, Kentucky LOC) P-1 1,100,000 ------------------------------------------------------------ 1,000,000 Jacksonville, FL, Hospital Revenue Bonds (Series 1989) Weekly VRDNs (Baptist Medical Center, AL)/(First Union National Bank, Charlotte, N.C. LOC) VMIG1 1,000,000 ------------------------------------------------------------ 4,300,000 Key West, FL Community Redevelopment Authority Weekly VRDNs (Pier House Joint Venture)/(PNC Bank, N.A. LOC) P-1 4,300,000 ------------------------------------------------------------ 4,000,000 Lake Shore, FL Hospital Authority, Health Facilities Revenue Bonds (Series 1991) Weekly VRDNs (Lake Shore Hospital)/(Kredietbank N.V., Brussels LOC) P-1 4,000,000 ------------------------------------------------------------ 2,860,000 Lee County, FL IDA, (Series 1985) Weekly VRDNs (Christian & Missionary Alliance Foundation)/(Banque Paribas, Paris LOC) P-1 2,860,000 ------------------------------------------------------------ 1,000,000 Lee County, FL IDA, Health Care Facilities Revenue Bonds Weekly VRDNs (Hope Hospice Project)/(Sun Bank NA, Orlando LOC) VMIG1 1,000,000 ------------------------------------------------------------
17 FLORIDA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - -------------- ------------------------------------------------------------ ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------- FLORIDA--CONTINUED ------------------------------------------------------------ $1,000,000 Lee County, FL IDA, IDRB (Series 1994) Weekly VRDNs (Baader North America Corporation)/(Deutsche Bank, AG LOC) VMIG1 $ 1,000,000 ------------------------------------------------------------ 300,000 Manatee County, FL HFA Weekly VRDNs (Carriage Club)/(Mellon Bank NA, Pittsburgh LOC) VMIG1 300,000 ------------------------------------------------------------ 1,000,000 Marion County, FL Health Facility Authority, Floating Rate Demand Multifamily Revenue Bonds (1985 Series F) Weekly VRDNs (Paddock Place Project)/(Trust Company Bank, Atlanta LOC) A-1 1,000,000 ------------------------------------------------------------ 3,250,000 Marion County, FL IDA, IDRB (Series 1989) Weekly VRDNs (Charter Springs Hospital, Inc.)/(Bankers Trust Co., New York LOC) A-1 3,250,000 ------------------------------------------------------------ 4,500,000 Martin County, FL School District, District Operating Millage Tax Anticipation Notes (Series 1995), 4.25% TANs, 6/8/1996 NR 4,510,414 ------------------------------------------------------------ 4,000,000 Miami, FL, TANS, (Series 1995), 4.50% TANs, 9/27/1996 SP-1+ 4,024,380 ------------------------------------------------------------ 2,000,000 Ocean Highway and Port Authority, Adjustable Demand Revenue Bonds (Series 1990) Weekly VRDNs (ABN AMRO Bank N.V., Amsterdam LOC) Aa1 2,000,000 ------------------------------------------------------------ 2,000,000 Orange County, FL HFA, Multifamily Housing Revenue Bonds Weekly VRDNs (Sutton Place Ltd. Project)/(Nationsbank of Maryland, N.A. LOC) A-1+ 2,000,000 ------------------------------------------------------------ 8,000,000 Orange County, FL School District, TANS (Series 1995), 4.50% TANs, 10/16/1996 SP-1+ 8,051,563 ------------------------------------------------------------ 1,000,000 Orange County, FL, Health Facilities Authority Weekly VRDNs (Mayflower Retirement Community)/(Rabobank Nederland, Utrecht LOC) A-1 1,000,000 ------------------------------------------------------------ 4,500,000 Palm Beach County, FL, Variable Rate Demand Revenue Bonds, (Series 1995) Weekly VRDNs (Norton Gallery and School of Art, Inc. Project)/(Northern Trust Co., Chicago, IL LOC) AA- 4,500,000 ------------------------------------------------------------
18 FLORIDA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - -------------- ------------------------------------------------------------ ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------- FLORIDA--CONTINUED ------------------------------------------------------------ $5,500,000 Pasco County, FL School District, TANS (Series 1995), 3.90% TANs, 6/30/1996 MIG1 $ 5,503,535 ------------------------------------------------------------ 3,500,000 Pinellas County Industry Council, FL, IDRB (Series 1994) Weekly VRDNs (Genca Corporation Project)/(PNC Bank, Ohio, N.A. LOC) A-1 3,500,000 ------------------------------------------------------------ 1,700,000 Pinellas County, FL Health Facility Authority Daily VRDNs (Chemical Bank, New York LOC) A-1 1,700,000 ------------------------------------------------------------ 1,000,000 Pinellas County, FL Health Facility Authority, (Series 1987) Weekly VRDNs (St. Mark Village Project)/(Nationsbank of Florida, N.A. LOC) A-1 1,000,000 ------------------------------------------------------------ 3,200,000 Pinellas County, FL Health Facility Authority, Single Family Mortgage Revenue Bonds (Series PA-92) Weekly VRDNs (GNMA COL)(Merrill Lynch Capital Services, Inc. LIQ) A-1+ 3,200,000 ------------------------------------------------------------ 3,800,000 Sarasota County, FL IDRB, (Series 1994) Monthly VRDNs (Resource Recovery Systems of Sarasota Project)/(Fleet National Bank, Providence R.I. LOC) A-1 3,800,000 ------------------------------------------------------------ 4,800,000 Seminole County, FL Health Facility Authority IDA, (Series 1991) Weekly VRDNs (Florida Living Nursing Center)/(Barnett Bank of Central Florida, Orlando LOC) VMIG1 4,800,000 ------------------------------------------------------------ 4,500,000 Southeast Volusia Hospital District, Revenue Bonds (Series 1995) Weekly VRDNs (Bert Fish Medical Center (FL))/(South Trust Bank of Alabama, Birmingham LOC) A-1 4,500,000 ------------------------------------------------------------ 4,000,000 St. Lucie County, FL PCR, (Series 94A), 3.70% CP (Florida Power & Light Co.), Mandatory Tender 11/21/1995 A-1 4,000,000 ------------------------------------------------------------ 845,000 St. Lucie County, FL, IDR Bonds (Series 1985) Weekly VRDNs (Savannahs Hospital)/(Nationsbank of Georgia, N.A. LOC) P-1 845,000 ------------------------------------------------------------
19 FLORIDA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - -------------- ------------------------------------------------------------ ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------- FLORIDA--CONTINUED ------------------------------------------------------------ $1,450,000 Sumter County, FL IDA Weekly VRDNs (Great Southern Wood of Florida)/(South Trust Bank of Alabama, Birmingham LOC) VMIG1 $ 1,450,000 ------------------------------------------------------------ 7,500,000 Suwannee County, FL, (Series 1989) Weekly VRDNs (Advent Christian Village Project)/(Barnett Bank of Jacksonville LOC) VMIG1 7,500,000 ------------------------------------------------------------ 4,000,000 Titusville, FL, Multi-Purpose Revenue Bonds, Installment 1995A Weekly VRDNs (Banque Paribas, Paris LOC) VMIG1 4,000,000 ------------------------------------------------------------ 1,675,000 Volusia County, FL IDA Weekly VRDNs (Crane Cams)/(First Interstate Bank of Arizona, NA LOC) P-1 1,675,000 ------------------------------------------------------------ 1,900,000 Volusia County, FL IDA, (Series 1994) Weekly VRDNs (Southern States Utilities, Inc.)/(Sun Bank NA, Orlando LOC) VMIG1 1,900,000 ------------------------------------------------------------ ------------ Total 147,885,340 ------------------------------------------------------------ ------------ ALABAMA--2.3% ------------------------------------------------------------ 3,500,000 Mobile, AL IDB, (1994 Series A), 4.05% TOBs (International Paper Co.), Mandatory Tender 12/1/1995 A-2 3,500,138 ------------------------------------------------------------ ------------ PUERTO RICO--0.7% ------------------------------------------------------------ 1,000,000 Puerto Rico Government Development Bank Weekly VRDNs (Credit Suisse, Zurich LOC) A-1+ 1,000,000 ------------------------------------------------------------ ------------ TOTAL INVESTMENTS, (AT AMORTIZED COST)(a) $152,385,478 ------------------------------------------------------------ ------------ ------------
Securities that are subject to Alternative Minimum Tax represent 22.5% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($153,346,518) at October 31, 1995. 20 FLORIDA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronym(s) are used throughout this portfolio: COL --Collateralized CP --Commercial Paper FGIC --Financial Guaranty Insurance Company GNMA --Government National Mortgage Association HFA --Housing Finance Authority IDA --Industrial Development Authority IDB --Industrial Development Bond IDR --Industrial Development Revenue IDRB --Industrial Development Revenue Bond INS --Insured LIQ --Liquidity Agreement LOC --Letter of Credit PCR --Pollution Control Revenue PLC --Public Limited Company TANs --Tax Anticipation Notes TOBs --Tender Option Bonds VRDNs --Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) 21 FLORIDA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------ Total investments in securities, at amortized cost and value $152,385,478 - ------------------------------------------------------------------ Cash 344,475 - ------------------------------------------------------------------ Income receivable 855,048 - ------------------------------------------------------------------ Deferred expenses 32,212 - ------------------------------------------------------------------ ------------ Total assets 153,617,213 - ------------------------------------------------------------------ LIABILITIES: - ------------------------------------------------------------------ Income distribution payable $202,994 - -------------------------------------------------------- Accrued expenses 67,701 - -------------------------------------------------------- -------- Total liabilities 270,695 - ------------------------------------------------------------------ ------------ NET ASSETS for 153,346,518 shares outstanding $153,346,518 - ------------------------------------------------------------------ ------------ ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------ $153,346,518 DIVIDED BY 153,346,518 shares outstanding $ 1.00 - ------------------------------------------------------------------ ------------ ------------
(See Notes which are an integral part of the Financial Statements) 22 FLORIDA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - -------------------------------------------------------------------- Interest $5,271,986 - -------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------- Investment advisory fee $ 522,992 - -------------------------------------------------------- Administrative personnel and services fee 125,000 - -------------------------------------------------------- Custodian fees 27,209 - -------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 12,115 - -------------------------------------------------------- Directors'/Trustees' fees 1,280 - -------------------------------------------------------- Auditing fees 9,750 - -------------------------------------------------------- Legal fees 2,290 - -------------------------------------------------------- Portfolio accounting fees 39,547 - -------------------------------------------------------- Shareholder services fee 326,870 - -------------------------------------------------------- Share registration costs 35,917 - -------------------------------------------------------- Printing and postage 20,880 - -------------------------------------------------------- Insurance premiums 5,295 - -------------------------------------------------------- Miscellaneous 2,341 - -------------------------------------------------------- ---------- Total expenses 1,131,486 - -------------------------------------------------------- Waivers-- - --------------------------------------------- Waiver of investment advisory fee $(480,076) - --------------------------------------------- Waiver of shareholder services fee (62,831) - --------------------------------------------- --------- Total waivers (542,907) - -------------------------------------------------------- ---------- Net expenses 588,579 - -------------------------------------------------------------------- ---------- Net investment income $4,683,407 - -------------------------------------------------------------------- ---------- ----------
(See Notes which are an integral part of the Financial Statements) 23 FLORIDA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED OCTOBER 31, 1995 OCTOBER 31, 1994(a) ----------------- ------------------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------- OPERATIONS-- - ------------------------------------------------- Net investment income $ 4,683,407 $ 165,156 - ------------------------------------------------- ----------------- ------------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ------------------------------------------------- Distributions from net investment income (4,683,407) (165,156) - ------------------------------------------------- ----------------- ------------------- SHARE TRANSACTIONS-- - ------------------------------------------------- Proceeds from sale of shares 1,361,774,097 134,110,437 - ------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,166,363 92,846 - ------------------------------------------------- Cost of shares redeemed (1,264,560,129) (80,237,096) - ------------------------------------------------- ----------------- ------------------- Change in net assets resulting from share transactions 99,380,331 53,966,187 - ------------------------------------------------- ----------------- ------------------- Change in net assets 99,380,331 53,966,187 - ------------------------------------------------- NET ASSETS: - ------------------------------------------------- Beginning of period 53,966,187 -- - ------------------------------------------------- ----------------- ------------------- End of period $ 153,346,518 $ 53,966,187 - ------------------------------------------------- ----------------- ------------------- ----------------- -------------------
(a) For the period from September 12, 1994 (start of business) to October 31, 1994. (See Notes which are an integral part of the Financial Statements) 24 FLORIDA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Florida Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 66.4% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or supported (backed) by a letter of credit for any one institution or agency does not exceed 7.5% of total investments. 25 FLORIDA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). At October 31, 1995, capital paid-in aggregated $153,346,518. Transactions in shares were as follows:
YEAR ENDED PERIOD ENDED OCTOBER OCTOBER 31, 1995 31, 1994(a) --------------------------------------- ---------------- -------------------- Shares sold 1,361,774,097 134,110,437 --------------------------------------- Shares issued to shareholders in payment of distributions declared 2,166,363 92,846 --------------------------------------- Shares redeemed (1,264,560,129) (80,237,096) --------------------------------------- ---------------- ----------- Net change resulting from share transactions 99,380,331 53,966,187 --------------------------------------- ---------------- ----------- ---------------- -----------
(a) For the period from September 12, 1994 (start of business) to October 31, 1994. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's shares. The Plan provides that the Fund may incur distribution 26 FLORIDA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- expenses up to .25 of 1% of the average daily net assets of the Fund shares, annually, to compensate FSC. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net assets of the Fund for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fees. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses of $15,374 were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organizational expenses during the five year period following the effective date. For the period ended October 31, 1995, the Fund paid $1,110 pursuant to this agreement. INTERFUND TRANSACTIONS--During the year ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment, common Directors/Trustees, and/or common Officers. These transactions were made at current market value pursuant to Rule 17a-7 under the Act amounting to $788,505,000 and $785,600,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. (5) SUBSEQUENT EVENT Effective November 17, 1995 the Fund added an additional class of shares called Cash II Shares. 27 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Florida Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Florida Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets and the financial highlights (see page 2 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Florida Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 28 ADDRESSES - -------------------------------------------------------------------------------- Florida Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 - -------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - -------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - --------------------------------------------------------------------------------
29 - -------------------------------------------------------------------------------- FLORIDA MUNICIPAL CASH TRUST INSTITUTIONAL SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 [FEDERATED SECURITIES CORP. LOGO] Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Cusip 314229758 005392 (12/95) [RECYCLED PAPER LOGO] RECYCLED MASSACHUSETTS MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS The Institutional Service Shares of Massachusetts Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Massachusetts municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Massachusetts, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and Massachusetts state income tax consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SERVICE SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Acceptable Investments 3 Variable Rate Demand Notes 4 Participation Interests 4 Municipal Leases 4 Credit Enhancement 4 Demand Features 5 When-Issued and Delayed Delivery Transactions 5 Restricted and Illiquid Securities 5 Temporary Investments 5 Massachusetts Municipal Securities 6 Investment Risks 6 Non-Diversification 7 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Board of Trustees 7 Investment Adviser 7 Advisory Fees 7 Adviser's Background 7 Distribution of Institutional Service Shares 8 Shareholder Services 8 Supplemental Payments to Financial Institutions 9 Administration of the Fund 9 Administrative Services 9 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 10 - ------------------------------------------------------ Purchasing Shares Through a Financial Institution 10 Purchasing Shares By Wire 10 Purchasing Shares By Check 10 Special Purchase Features 10 Systematic Investment Program 10 HOW TO REDEEM SHARES 11 - ------------------------------------------------------ Redeeming Shares Through a Financial Institution 11 Redeeming Shares By Telephone 11 Redeeming Shares By Mail 11 Special Redemption Features 12 Check Writing 12 Debit Card 12 Systematic Withdrawal Program 12 ACCOUNT AND SHARES INFORMATION 12 - ------------------------------------------------------ Dividends 12 Capital Gains 12 Certificates and Conformations 12 Accounts with Low Balances 12 Voting Rights 13 TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 State and Local Taxes 14 Massachusetts Taxes 14 OTHER CLASSES OF SHARES 14 - ------------------------------------------------------ PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- BAYFUNDS SHARES 16 - ------------------------------------------------------ FINANCIAL STATEMENTS 17 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 29 - ------------------------------------------------------ ADDRESSES 30 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)............................ None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)................. None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable).................................................................... None Redemption Fee (as a percentage of amount redeemed, if applicable)....................................... None Exchange Fee............................................................................................. None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)........................................................................ 0.30% 12b-1 Fee................................................................................................ None Total Other Expenses..................................................................................... 0.25% Shareholder Services Fee (after waiver) (2)................................................. 0.00% Total Operating Expenses (3)................................................................... 0.55%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The maximum shareholder services fee is 0.25%. (3) The total operating expenses would have been 1.00% absent the voluntary waivers of a portion of the management fee and the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Services Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information". Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period............................................................... $ 6 $ 18 $ 31 $ 69
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. MASSACHUSETTS MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 29.
YEAR ENDED OCTOBER 31, 1995 1994 1993 1992 1991 1990(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ---------------------------------------------------------- Net investment income 0.03 0.02 0.02 0.03 0.05 0.03 - ---------------------------------------------------------- LESS DISTRIBUTIONS - ---------------------------------------------------------- Dividends from net investment income (0.03) (0.02) (0.02) (0.03) (0.05) (0.03) - ---------------------------------------------------------- --------- --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------- --------- --------- --------- --------- --------- --------- TOTAL RETURN (B) 3.34% 2.14% 1.99% 2.87% 4.63% 2.59% - ---------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------------------------------- Expenses 0.55% 0.55% 0.53% 0.34% 0.30% 0.17%* - ---------------------------------------------------------- Net investment income 3.30% 2.12% 1.97% 2.82% 4.48% 5.66%* - ---------------------------------------------------------- Expense waiver/reimbursement (c) 0.45% 0.35% 0.43% 0.55% 0.69% 0.57%* - ---------------------------------------------------------- SUPPLEMENTAL DATA - ---------------------------------------------------------- Net assets, end of period (000 omitted) $99,628 $90,013 $84,524 $85,570 $81,681 $63,483 - ----------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from May 18, 1990 (date of initial public investment) to October 31, 1990. (b) Based on net asset value which does not reflect sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Trustees have established two classes of shares known as Institutional Service Shares and BayFunds Shares. This prospectus relates only to Institutional Service Shares of the Fund, which are designed primarily for financial institutions acting in an agency capacity as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term Massachusetts municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Massachusetts taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and Massachusetts state income tax consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Massachusetts municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Massachusetts state income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Massachusetts and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Massachusetts state income tax imposed upon non-corporate taxpayers ("Massachusetts Municipal Securities"). Examples of Massachusetts Municipal Securities include, but are not limited to: tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes ("BANs") that are intended to be refinanced through a later issuance of longer-term bonds; municipal commercial paper and other short-term notes; variable rate demand notes; municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and participation, trust and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Massachusetts Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Massachusetts Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Massachusetts Municipal Securities is subject to the federal alternative minimum tax. MASSACHUSETTS MUNICIPAL SECURITIES Massachusetts Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Massachusetts Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Massachusetts Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Massachusetts Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Massachusetts Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Massachusetts Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Massachusetts Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Massachusetts Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Massachusetts Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. This investment limitation cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES Federated Securities Corp. is the principal distributor for Institutional Service Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund will make payments up to .25 of 1% of the average daily net asset value of the Institutional Service Shares, computed at an annual rate, to obtain certain personal services for shareholders and to provide the maintenance of shareholder accounts (shareholder services). From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. With respect to Institutional Service Shares, in addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance will be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of Insitutional Service Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $25,000 within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o of State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Massachusetts Municipal Cash Trust, Institutional Service Shares; (Fund Number) (This number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to Massachusetts Municipal Cash Trust--Institutional Service Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If shares certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. The check writing service allows shareholders to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shares of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Massachusetts. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. MASSACHUSETTS TAXES. Under existing Massachusetts laws, distributions made by the Fund will not be subject to Massachusetts personal income taxes to the extent that such dividends qualify as exempt interest dividends under the Internal Revenue Code, and represent (i) interest or gain on obligations issued by the Commonwealth of Massachusetts, its political subdivisions or agencies; or (ii) interest on obligations of the United States, its territories or possessions to the extent exempt from taxation by the states pursuant to federal law. Conversely, to the extent that the distributions made by the Fund are derived from other types of obligations, such dividends will be subject to Massachusetts personal income taxes. Shareholders subject to the Massachusetts corporate excise tax must include all dividends paid by the Fund in their net income, and the value of their shares of stock in the Fund in their net worth, when computing the Massachusetts corporate excise tax. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers another class of shares called BayFunds Shares that are sold primarily to retail customers of the banking subsidiaries of BayFunds, Inc. Investments. BayFund Shares are sold at net asset value and are subject to a Shareholder Services Agreement. Investments in BayFund Shares are subject to a minimum initial investment of $2,500. Institutional Service Shares and BayFund Shares are subject to certain of the same expenses. Expense differences, however, between Institutional Service Shares and BayFund Shares may affect the performance of each class. To obtain more information and a prospectus for BayFund Shares, investors may call 1-800-235-4669. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield for shares. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the shares' tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. MASSACHUSETTS MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--BAYFUNDS SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 29.
YEAR ENDED OCTOBER 31, 1995 1994 1993(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ---------------------------------------------------------- Net investment income 0.03 0.02 0.01 - ---------------------------------------------------------- ------- ------- ------- LESS DISTRIBUTIONS - ---------------------------------------------------------- Distributions from net investment income (0.03) (0.02) (0.01) - ---------------------------------------------------------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------- ------- ------- ------- TOTAL RETURN (B) 3.30% 2.05% 1.25% - ---------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------------------------------- Expenses 0.60% 0.64% 0.65%* - ---------------------------------------------------------- Net investment income 3.25% 2.09% 1.85%* - ---------------------------------------------------------- Expense waiver/reimbursement (c) 0.45% 0.35% 0.43%* - ---------------------------------------------------------- SUPPLEMENTAL DATA - ---------------------------------------------------------- Net assets, end of period (000 omitted) $46,580 $41,912 $18,143 - ----------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from March 8, 1993 (date of initial public investment) to October 31, 1993. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ -------------------------------------------------------------------------- ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--99.3% - ---------------------------------------------------------------------------------------- MASSACHUSETTS--99.3% -------------------------------------------------------------------------- $ 3,535,000 Attleboro, MA, (Lot A), 4.10% BANs, 12/14/1995 NR(3) $ 3,535,408 -------------------------------------------------------------------------- 2,000,000 Attleboro, MA, (Lot B), 5.25% BANs, 2/14/1996 NR(3) 2,000,817 -------------------------------------------------------------------------- 1,250,000 Attleboro, MA, (Lot B), 5.50% BANs, 2/14/1996 NR(3) 1,251,366 -------------------------------------------------------------------------- 1,500,000 Attleboro, MA, 4.10% BANs, 12/14/1995 NR(3) 1,500,347 -------------------------------------------------------------------------- 620,000 Billerica, MA, LT GO Bonds, 7.25% (MBIA Insurance Corporation INS), 10/15/1996 NR(1) 638,493 -------------------------------------------------------------------------- 2,000,000 Boston, MA Water & Sewer Commission, General Revenue Bonds (1994 Series A) Weekly VRDNs (State Street Bank and Trust Co. LOC) VMIG1 2,000,000 -------------------------------------------------------------------------- 5,000,000 (a) Clipper, MA Tax Exempt Trust Weekly VRDNs (State Street Bank and Trust Co. LIQ) VMIG1 5,000,000 -------------------------------------------------------------------------- 3,465,000 (a) Clipper, MA Tax Exempt Trust, (Series 1993-1) Weekly VRDNs (State Street Bank and Trust Co. LIQ) VMIG1 3,465,000 -------------------------------------------------------------------------- 3,000,000 Commonwealth of Massachusetts Weekly VRDNs (AMBAC INS)/(Citibank NA, New York LIQ) NR(1) 3,000,000 -------------------------------------------------------------------------- 3,500,000 Commonwealth of Massachusetts, (Series A), 3.75% CP (Union Bank of Switzerland, Zurich LIQ), Mandatory Tender 11/8/1995 P-1 3,500,000 -------------------------------------------------------------------------- 3,200,000 Framingham, MA IDA Weekly VRDNs (Perini Corp)/(Barclays Bank PLC, London LOC) A-1+ 3,200,000 -------------------------------------------------------------------------- 3,093,000 Greenfield, MA, 4.25% BANs, 9/13/1996 NR(3) 3,099,438 -------------------------------------------------------------------------- 1,000,000 Haverhill, MA, 8.875% Bonds (United States Treasury PRF), 12/1/1995 (@102) NR(1) 1,023,454 -------------------------------------------------------------------------- 300,000 Ludlow, MA Weekly VRDNs (Advanced Drainage System, Inc.)/(First National Bank of Chicago LOC) P-1 300,000 -------------------------------------------------------------------------- 4,000,000 Mashpee, MA, 4.22% BANs, 7/5/1996 NR(3) 4,001,572 -------------------------------------------------------------------------- 1,500,000 Massachusetts Bay Transit Authority, (Series C), 3.70% CP (Westdeutsche Landesbank Girozentrale LOC), Mandatory Tender 1/17/1996 SP-1+ 1,500,000 -------------------------------------------------------------------------- $ 4,000,000 Massachusetts HEFA Weekly VRDNs (Harvard University) A-1+ $ 4,000,000 --------------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ------------------------------------------------------------------------ ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ---------------------------------------------------------------------------------------- MASSACHUSETTS--CONTINUED -------------------------------------------------------------------------- 3,460,000 Massachusetts HEFA Weekly VRDNs (Newbury College)/ (Barclays Bank PLC, London LOC) P-1 3,460,000 -------------------------------------------------------------------------- 200,000 Massachusetts HEFA, (Series A) Weekly VRDNs (Brigham & Women's Hospital)/(Sanwa Bank Ltd, Osaka LOC) P-1 200,000 -------------------------------------------------------------------------- 3,410,000 Massachusetts HEFA, (Series A) Weekly VRDNs (New England Home For Little Wanderers)/(First National Bank of Boston, MA LOC) P-1 3,410,000 -------------------------------------------------------------------------- 2,900,000 Massachusetts HEFA, (Series B) Weekly VRDNs (Clark University)/(Sanwa Bank Ltd, Osaka LOC) VMIG1 2,900,000 -------------------------------------------------------------------------- 1,500,000 Massachusetts HEFA, (Series D) Weekly VRDNs (Capital Asset Program)/(MBIA Insurance Corporation INS)/(Sanwa Bank Ltd, Osaka LIQ) VMIG1 1,500,000 -------------------------------------------------------------------------- 2,400,000 Massachusetts HEFA, (Series E) Weekly VRDNs (Williams College, MA) A-1+ 2,400,000 -------------------------------------------------------------------------- 400,000 Massachusetts HEFA, (Series E) Weekly VRDNs (Capital Asset Program)/(First National Bank of Chicago LIQ)/(Sanwa Bank Ltd, Osaka LOC) VMIG1 400,000 -------------------------------------------------------------------------- 6,300,000 Massachusetts HEFA, (Series F) Weekly VRDNs (Children's Hospital of Boston) A-1+ 6,300,000 -------------------------------------------------------------------------- 2,500,000 Massachusetts HEFA, (Series G) Weekly VRDNs (Massachusetts Institute of Technology) NR(1) 2,500,000 -------------------------------------------------------------------------- 4,000,000 Massachusetts HEFA, 3.75% CP (Fallon Heathcare System)/ (Sanwa Bank Ltd, Osaka LOC), Mandatory Tender 2/22/1996 A-1+ 4,000,000 -------------------------------------------------------------------------- 5,000,000 Massachusetts HEFA, 3.80% CP (Harvard University), Mandatory Tender 1/26/1996 A-1+ 5,000,000 -------------------------------------------------------------------------- 3,000,000 Massachusetts HEFA, 3.90% CP (Fallon Heathcare System)/ (Sanwa Bank Ltd, Osaka LOC), Mandatory Tender 11/28/1995 A-1+ 3,000,000 -------------------------------------------------------------------------- 800,000 Massachusetts Municipal Wholesale Electric Company, Variable Rate Power Supply System Revenue Bonds (1994 Series C) Weekly VRDNs (Canadian Imperial Bank of Commerce, Toronto LOC) A-1+ 800,000 --------------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ------------------------------------------------------------------------ ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ---------------------------------------------------------------------------------------- MASSACHUSETTS--CONTINUED -------------------------------------------------------------------------- $ 2,400,000 Massachusetts Port Authority, (Series 1995A) Daily VRDNs (Landesbank Hessen-Thueringen, Frankfurt LOC) A-1+ $ 2,400,000 -------------------------------------------------------------------------- 3,270,000 Massachusetts State HFA, Multi-Family Housing Refunding Bonds (1995 Series A), 5.00% (MBIA Insurance Corporation INS), 7/1/1996 NR(1) 3,287,798 -------------------------------------------------------------------------- 4,000,000 Massachusetts Water Resources Authority, (Series 1994), 3.80% CP (Morgan Guaranty Trust Co., New York LOC), Mandatory Tender 12/13/1995 A-1+ 4,000,000 -------------------------------------------------------------------------- 1,000,000 Massachusetts, IFA Weekly VRDNs (Berkshire, MA School)/ (National Westminster Bank, PLC, London LOC) VMIG1 1,000,000 -------------------------------------------------------------------------- 1,300,000 Massachusetts, IFA Weekly VRDNs (Groton School)/(National Westminster Bank, PLC, London LOC) VMIG1 1,300,000 -------------------------------------------------------------------------- 8,000,000 Massachusetts, IFA Weekly VRDNs (Kendall Square Entity)/ (State Street Bank and Trust Co. LOC) P-1 8,000,000 -------------------------------------------------------------------------- 500,000 Massachusetts, IFA Weekly VRDNs (New England Deaconess Associates)/(Banque Paribas, Paris LOC) A-1 500,000 -------------------------------------------------------------------------- 1,100,000 Massachusetts, IFA, (1991 Issue), 5.25% TOBs (St. Mark's School of Southborough, Inc.)/(Barclays Bank PLC, London LOC), Mandatory Tender 1/9/1996 VMIG1 1,100,000 -------------------------------------------------------------------------- 300,000 Massachusetts, IFA, (Series 1992) Weekly VRDNs (Holyoke Water Power Co.)/(Canadian Imperial Bank of Commerce, Toronto LOC) VMIG1 300,000 -------------------------------------------------------------------------- 2,000,000 Massachusetts, IFA, (Series 1992B), 3.75% CP (New England Power Co.), Mandatory Tender 11/27/1995 A-1 2,000,000 -------------------------------------------------------------------------- 5,000,000 Massachusetts, IFA, (Series 1992B), 3.80% CP (New England Power Co.), Mandatory Tender 2/13/1996 A-1 5,000,000 -------------------------------------------------------------------------- 5,800,000 Massachusetts, IFA, (Series 1995) Weekly VRDNs (Whitehead Institute for Biomedical Research) VMIG1 5,800,000 -------------------------------------------------------------------------- 925,000 Massachusetts, IFA, (Series A) Weekly VRDNs (Hockomock YMCA)/(Bank of Nova Scotia, Toronto LOC) P-1 925,000 --------------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ------------------------------------------------------------------------ ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ---------------------------------------------------------------------------------------- MASSACHUSETTS--CONTINUED -------------------------------------------------------------------------- $ 4,000,000 Massachusetts, IFA, (Series B) Weekly VRDNs (Williston North Hampton School)/(National Westminster Bank, PLC, London LOC) A-1+ $ 4,000,000 -------------------------------------------------------------------------- 6,000,000 Massachusetts, IFA, Variable Rate Demand Revenue Bonds (Series 1995) Weekly VRDNs (Emerson College Issue)/ (Baybank, Burlington, MA LOC) P-2 6,000,000 -------------------------------------------------------------------------- 1,000,000 Massachusetts, IFA, Variable Rate Refunding Revenue Bonds 1994 Project Daily VRDNs (Showa Womens Institute Boston, Inc.)/(Fuji Bank, Ltd., Tokyo LOC) VMIG1 1,000,000 -------------------------------------------------------------------------- 5,600,000 New Bedford, MA, 4.60% BANs (Fleet National Bank, Providence, R.I. LOC), 3/15/1996 P-1 5,614,145 -------------------------------------------------------------------------- 2,500,000 North Adams, MA, 4.24% BANs, 6/30/1996 NR(3) 2,501,422 -------------------------------------------------------------------------- 2,297,900 North Attleborough, MA, 4.65% BANs, 4/19/1996 NR(3) 2,299,886 -------------------------------------------------------------------------- 5,300,000 Springfield, MA , 4.40% BANs (Fleet National Bank, Providence, R.I. LOC), 2/9/1996 P-1 5,308,469 -------------------------------------------------------------------------- 4,000,000 Springfield, MA , 4.50% BANs (Fleet National Bank, Providence, R.I. LOC), 2/9/1996 P-1 4,006,426 -------------------------------------------------------------------------- -------------- TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $ 145,229,041 -------------------------------------------------------------------------- --------------
* Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Denotes a restricted security which is subject to restrictions or resale under Federal Securities laws. These securities have been determined to be liquid under criteria established by the Board of Trustees at the end of the period, these securities amounted to $8,465,000 which represents 5.8% of net assets. (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($146,207,706) at October 31, 1995. MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronyms are used throughout this portfolio: AMBAC--American Municipal Bond Assurance Corporation BANs--Bond Anticipation Notes CP--Commercial Paper GO--General Obligation HEFA--Health and Education Facilities Authority HFA--Housing Finance Authority IDA--Industrial Development Authority IFA--Industrial Finance Authority INS--Insured LIQ--Liquidity Agreement LOC--Letter of Credit LT--Limited Tax MBIA--Municipal Bond Investors Assurance PLC--Public Limited Company PRF--Prerefunded TOBs--Tender Option Bonds VRDNs--Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------------------------------ Total investments in securities, at amortized cost and value $ 145,229,041 - ------------------------------------------------------------------------------------------------------ Cash 181,475 - ------------------------------------------------------------------------------------------------------ Income receivable 1,052,777 - ------------------------------------------------------------------------------------------------------ Receivable for shares sold 958 - ------------------------------------------------------------------------------------------------------ Deferred expenses 1,248 - ------------------------------------------------------------------------------------------------------ -------------- Total assets 146,465,499 - ------------------------------------------------------------------------------------------------------ LIABILITIES: - ------------------------------------------------------------------------------------------ Income distribution payable $ 219,077 - ------------------------------------------------------------------------------------------ Accrued expenses 38,716 - ------------------------------------------------------------------------------------------ ---------- Total liabilities 257,793 - ------------------------------------------------------------------------------------------------------ -------------- NET ASSETS for 146,207,706 shares outstanding $ 146,207,706 - ------------------------------------------------------------------------------------------------------ -------------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------------------------------ INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------------------------------ ($99,627,788 / 99,627,788 shares outstanding) $1.00 - ------------------------------------------------------------------------------------------------------ -------------- BAYFUNDS SHARES: - ------------------------------------------------------------------------------------------------------ ($46,579,918 / 46,579,918 shares outstanding) $1.00 - ------------------------------------------------------------------------------------------------------ --------------
(See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - -------------------------------------------------------------------------------------------------------- Interest $ 5,286,218 - -------------------------------------------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------------------------------------------- Investment advisory fee $ 686,918 - -------------------------------------------------------------------------------------------- Administrative personnel and services fee 155,000 - -------------------------------------------------------------------------------------------- Custodian fees 36,851 - -------------------------------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 47,328 - -------------------------------------------------------------------------------------------- Sub-transfer agent fees--BayFunds Shares 20,832 - -------------------------------------------------------------------------------------------- Directors'/Trustees' fees 1,447 - -------------------------------------------------------------------------------------------- Auditing fees 14,671 - -------------------------------------------------------------------------------------------- Legal fees 2,692 - -------------------------------------------------------------------------------------------- Portfolio accounting fees 40,267 - -------------------------------------------------------------------------------------------- Shareholder services fee--Institutional Service Shares 232,505 - -------------------------------------------------------------------------------------------- Shareholder services fee--BayFunds Shares 110,936 - -------------------------------------------------------------------------------------------- Share registration costs 17,284 - -------------------------------------------------------------------------------------------- Printing and postage 16,615 - -------------------------------------------------------------------------------------------- Insurance premiums 5,740 - -------------------------------------------------------------------------------------------- Miscellaneous 9,888 - -------------------------------------------------------------------------------------------- ---------- Total expenses 1,398,974 - -------------------------------------------------------------------------------------------- Waivers-- - ------------------------------------------------------------------------------- Waiver of investment advisory fee $ (276,299) - ------------------------------------------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (232,505) - ------------------------------------------------------------------------------- Waiver of shareholder services fee--BayFunds Shares (110,936) - ------------------------------------------------------------------------------- ----------- Total waivers (619,740) - -------------------------------------------------------------------------------------------- ---------- Net expenses 779,234 - -------------------------------------------------------------------------------------------------------- ------------ Net investment income $ 4,506,984 - -------------------------------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1995 1994 INCREASE (DECREASE) IN NET ASSETS: - -------------------------------------------------------------------------------- OPERATIONS-- - -------------------------------------------------------------------------------- Net investment income $ 4,506,984 $ 2,717,161 - -------------------------------------------------------------------------------- ------------------ --------------- DISTRIBUTIONS TO SHAREHOLDERS-- - -------------------------------------------------------------------------------- Distributions from net investment income - -------------------------------------------------------------------------------- Institutional Service Shares (3,066,535) (2,037,982) - -------------------------------------------------------------------------------- BayFunds Shares (1,440,449) (679,179) - -------------------------------------------------------------------------------- ------------------ --------------- Change in net assets resulting from distributions to shareholders (4,506,984) (2,717,161) - -------------------------------------------------------------------------------- ------------------ --------------- SHARE TRANSACTIONS-- - -------------------------------------------------------------------------------- Proceeds from sale of shares 371,068,422 349,831,127 - -------------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,255,146 1,275,493 - -------------------------------------------------------------------------------- Cost of shares redeemed (359,040,754) (321,848,920) - -------------------------------------------------------------------------------- ------------------ --------------- Change in net assets resulting from share transactions 14,282,814 29,257,700 - -------------------------------------------------------------------------------- ------------------ --------------- Change in net assets 14,282,814 29,257,700 - -------------------------------------------------------------------------------- NET ASSETS: - -------------------------------------------------------------------------------- Beginning of period 131,924,892 102,667,192 - -------------------------------------------------------------------------------- ------------------ --------------- End of period $ 146,207,706 $ 131,924,892 - -------------------------------------------------------------------------------- ------------------ ---------------
(See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Massachusetts Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers two classes of shares: Institutional Service Shares and BayFund Shares. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 55.1% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or supported (backed) by a letter of credit for any one institution or agency does not exceed 10.3% of total investments. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1995 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST Clipper, MA, Tax Exempt Trust, Weekly VRDNs (State Street Bank and Trust Co. LIQ) 5/15/95 $ 5,000,000 Clipper, MA, Tax Exempt Trust, (Series 1993-1) Weekly VRDNs (State Street Bank and Trust Co. LIQ) 6/30/95 $ 3,465,000
OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1995, capital paid-in aggregated $146,207,706. MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, 1995 1994 INSTITUTIONAL SERVICE SHARES - ---------------------------------------------------------------------------------- Shares sold 337,436,671 298,784,520 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 814,368 594,441 - ---------------------------------------------------------------------------------- Shares redeemed (328,636,637) (293,889,923) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from Institutional Service share transactions 9,614,402 5,489,038 - ---------------------------------------------------------------------------------- -------------- --------------
YEAR ENDED OCTOBER 31, 1995 1994 BAYFUNDS SHARES - ---------------------------------------------------------------------------------- Shares sold 33,631,751 51,046,608 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,440,778 681,051 - ---------------------------------------------------------------------------------- Shares redeemed (30,404,117) (27,958,997) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from BayFunds share transactions 4,668,412 23,768,662 - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from share transactions 14,282,814 29,257,700 - ---------------------------------------------------------------------------------- -------------- --------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net assets for Institutional Service Shares for the period. Under the terms of a Shareholder Services Agreement with BayBank Systems, Inc., the Fund will pay BayBank Systems, Inc. up to .25 of 1% of average daily net assets for BayFunds Shares for the period. These fees are to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntarily waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses of $44,840 and start-up administrative service expenses of $43,014 were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organizational and start-up administrative expenses during the five year period following May 18, 1990 (the date the Fund became effective). For the period ended October 31, 1995, the Fund paid $3,869 and $4,291, respectively, pursuant to this agreement. During the period, the Fund completed its obligation for organizational and start-up administrative expenses pursuant to this agreement. INTERFUND TRANSACTIONS--During the period ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common Officers. These transactions were made at current market value pursuant to rule 17a-7 under the Act amounting to $189,150,000 and $215,560,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Massachusetts Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Massachusetts Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights (see pages 2 and 16 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Massachusetts Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 ADDRESSES - -------------------------------------------------------------------------------- Massachusetts Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 - ----------------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - ----------------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - -----------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST INSTITUTIONAL SERVICE SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 FEDERATED SECURITIES CORP. --------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 CUSIP 314229303 0032603A-ISS (12/95) MASSACHUSETTS MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus for Institutional Service Shares of Massachusetts Municipal Cash Trust (the "Fund") a portfolio of Federated Municipal Trust ( the "Trust") dated December 31, 1995. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-235- 4669. FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 Statement dated December 31, 1995 Federated Securities Corp. DISTRIBUTOR A SUBSIDIARY OF FEDERATED INVESTORS INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued And Delayed Delivery Transactions 1 Repurchase Agreements 2 Credit Enhancement 2 MASSACHUSETTS INVESTMENT RISKS 2 INVESTMENT LIMITATIONS 3 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 The Funds 9 Share Ownership 9 Trustees Compensation 10 Trustee Liability 10 INVESTMENT ADVISORY SERVICES 11 Investment Adviser 11 Advisory Fees 11 BROKERAGE TRANSACTIONS 11 OTHER SERVICES 12 Fund Administration 12 Custodian and Portfolio Recordkeeper 12 Transfer Agent 12 Independent Public Accountants 12 SHAREHOLDER SERVICES AGREEMENT 12 DETERMINING NET ASSET VALUE 12 REDEMPTION IN KIND 13 MASSACHUSETTS PARTNERSHIP LAW 13 THE FUND'S TAX STATUS 13 PERFORMANCE INFORMATION 13 Yield 13 Effective Yield 13 Tax-Equivalent Yield 14 Tax-Equivalency Table 14 Total Return 14 Performance Comparisons 15 ABOUT FEDERATED INVESTORS 15 Mutual Fund Market 15 Institutional Clients 15 Trust Organizations 15 Broker/Dealers and Bank Broker/Dealer Subsidiaries 16 APPENDIX 17 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security, the issuer of any demand feature applicable to the security, or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing participation interests having a seven day demand feature, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Board of Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of non-appropriation"); and any credit enhancement or legal recourse provided upon an event of non- appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1, or 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 rating categories. See "Regulatory Compliance." WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated on the Fund`s records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, brokers/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit-enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the "credit enhancer"), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. MASSACHUSETTS INVESTMENT RISKS The Fund invests in obligations of Massachusetts issuers which results in the Fund's performance being subject to risks associated with the overall economic conditions present within Massachusetts (the "Commonwealth"). The following information is a brief summary of the recent prevailing economic conditions and a general summary of the Commonwealth's financial status. This information is based on official statements relating to securities that have been offered by Massachusetts issuers and from other sources believed to be reliable but should not be relied upon as a complete description of all relevant information. The Commonwealth has a diverse economy with manufacturing, education, health care, computers and financial services all being significant contributors. Massachusetts is generally considered the leader in research and development within the biotechnology, software and robotics industries as well as having many highly prestigious universities. In addition to a highly skilled and educated workforce, the Commonwealth has one of the higher average per capita incomes in this country. Beginning in the late 1980's, economic growth in the New England region and Massachusetts, in particular, slowed and showed pronounced deterioration in the construction, real estate, financial and manufacturing sectors. Between 1988 and 1992, there were extensive job losses that resulted in a 10% reduction in the work force. Also, over the same period, property values in the region experienced a similar decline. More recently, the Massachusetts economy has experienced a slight recovery, however, at a slower pace than the nation and there are signs that this recovery may be slowing. In addition, after years of above average property value growth, property values have decreased an estimated 6% over the same period. The two major revenue sources available to cities and towns in Massachusetts are local property taxes and local aid from the Commonwealth. Property taxes are subject to limitations imposed by a state-wide initiative approved by the voters in November, 1980 (commonly known as Proposition 2-1/2), which limits the property taxes that may be levied by any city or town in any fiscal year to the lesser of (i) 2.5% of the full valuation of the real estate and personal property therein or (ii) 2.5% over the previous year's levy limit plus any growth in the tax base from new construction. In recent years the decrease in property values due to the recession and the limitations of tax levy growth imposed by Proposition 2-1/2 have resulted in budget constraints for many cities and towns. The overall financial condition of the Commonwealth can also be illustrated by the changes of its debt ratings. During the period in which the Commonwealth has experienced its financial difficulties beginning in 1988, its general obligation long-term debt ratings as determined by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group decreased from Aa and AA+, respectively, to Baa and BBB. Since then the Commonwealth has had its debt ratings raised by the two rating agencies to A1 and A+ by Moody's and S&P, respectively, reflecting its improved fiscal performance. The Fund's concentration in securities issued by the Commonwealth and its political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. The ability of the Commonwealth or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the Commonwealth; and the underlying fiscal condition of the Commonwealth and its municipalities. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as are necessary for the clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of the value of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may acquire publicly or non-publicly issued Massachusetts municipal securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies, and limitations or Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate or real estate limited partnerships, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry, or in industrial development bonds or other securities the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. DIVERSIFICATION OF INVESTMENTS With regard to at least 50% of its total assets, no more than 5% of its total assets are to be invested in the securities of a single issuer, and no more than 25% of its total assets are to be invested in the securities of a single issuer at the close of each quarter of each fiscal year. Under this limitation, each governmental subdivision, including states, territories, possessions of the United States, or their political subdivisions, agencies, authorities, instrumentalitites, or similar entities will be considered a separate issuer if its assets and revenues are separate from those of the governmental body creating it and the security is backed only by its own assets and revenues. Industrial development bonds backed only by the assets and revenues of a non- governmental issuer are considered to be issued solely by that issuer. If, in the case of an industrial development bond or government issued security, a governmental or other entity guarantees the security, such guarantee would be considered a separate security issued by the guarantor, as well as the other issuer, subject to limited exclusions allowed by the Investment Company Act of 1940. The above limitations cannot be changed without shareholder approval. The following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers (including companies responsible for paying principal and interest on industrial development bonds) which have records of less than three years of continuous operations, including the operation of any predecessor. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF THE TRUST The Fund will not purchase or retain the securities of any issuer if the Officers and Trustees of the Trust or its investment adviser, owning individually more than .50 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. INVESTING IN MINERALS The Fund will not purchase or sell interests in oil, gas, or other mineral exploration or development programs or leases, although it may purchase the securities of issuers which invest in or sponsor such programs. For purposes of the above limitations, the Fund considers 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 to be "cash items." Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President of the Trust . Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds; formerly, Senior Partner, Ernst & Young LLP. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; President, Northgate Village Development Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Director, Trustee, or Managing General Partner of the Funds; formerly, President, Naples Property Management, Inc. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee, or Managing General Partner of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine and Member, Board of Trustees, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director, Trustee, or Managing General Partner of the Funds. Edward L. Flaherty, Jr.@ Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director, Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson * Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. and Federated Administrative Services. Peter E. Madden Seacliff 562 Bellevue Avenue Newport, RI Birthdate: March 16, 1942 Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, Trustee, or Managing General Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation. Gregor F. Meyer Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General Partner of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director, Trustee or Managing General Partner of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics and Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; founding Chairman, National Advisory Council for Environmental Policy and Technology and Federal Emergency Management Advisory Board. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/marketing consultant; Conference Coordinator, Non-profit entities; Director, Trustee, or Managing General Partner of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative Services, Federated Services Company, and Federated Shareholder Services; 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 of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. David M. Taylor Federated Investors Tower Pittsburgh, PA Birthdate: January 13, 1947 Treasurer Senior Vice President, Controller, and Trustee, Federated Investors; Controller, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., and Passport Research, Ltd.; Senior Vice President, Federated Shareholder Services; Vice President, Federated Administrative Services; Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President and Secretary Executive Vice President, Secretary, General Counsel, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds. * This Trustee is deemed to be an "interested person" as defined in the Investment Company Act of 1940, as amended. @ Member of the 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 As used in the table above, "The Funds" and "Funds" mean the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; 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; 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 U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free Instruments Trust; Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The Virtus Funds; World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees own less than 1% of the Trust`s outstanding shares. As of December 4,1995, the following shareholders of record owned 5% or more of the outstanding BayFunds Shares of the Fund: John & Co., Burlington, MA, owned approximately 48,086,125 shares (100%). As of December 4,1995, the following shareholders of record owned 5% or more of the outstanding Institutional Service Shares of the Fund: State Street Bank and Trust Company, North Quincy, Massachusetts, (as record owner holding shares for its clients) owned approximately 17,899,399 shares (17,90%); John & Company, Burlington, Massachusetts, owned approximately 19,517,012 shares (19.52%); and State Street Bank and Trust Company, North Quincy, Massachusetts, (as record owner holding shares for its clients) owned approximately 16,017,266 shares (16.02%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID CORPORATION CORPORATION*# FROM FUND COMPLEX + John F. Donahue, $0 $0 for the Fund and Chairman and Director 68 other investment companies in the Fund Complex Thomas G. Bigley,$2,458 $20,688 for the Fund and Director 49 other investment companies in the Fund Complex John T. Conroy, $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex William J. Copeland, $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex James E. Dowd, $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex Lawrence D. Ellis, M.D., $3,266 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex Edward L. Flaherty, Jr., $3,520 $117,202 for the Fund and Director 64 other investment companies in the Fund Complex Peter E. Madden, $2,757 $90,563 for the Fund and Director 64 other investment companies in the Fund Complex Gregor F. Meyer, $3,166 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex John E. Murray, Jr., $1,762 $0 for the Fund and Director 64 other investment companies in the Fund Complex Wesley W. Posvar,$3,166 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex Marjorie P. Smuts, $3,166 $106,460 for the Fund and Director 64 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1995. #The aggregate compensation is provided for the Trust which is comprised of 15 portfolios. +The information is provided for the last calendar year. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1995, 1994, and 1993 the adviser earned $686,918, $643,293, and $498,975 respectively, of which $276,299, $445,711, and $427,232, and respectively, was voluntarily waived. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this 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 fees. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Board of Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Trust and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal year ended October 31, 1995, the Trust paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc., also a subsidiary of Federated Investors, served as the Fund's Administrator. (For purposes of this Statement of Additional Information, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the "Administrators".) For the fiscal years ended October 31, 1995, 1994, and 1993, the Administrators earned $155,000, $195,483, and $253,380, respectively. Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, holds approximately 20% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. CUSTODIAN AND PORTFOLIO RECORDKEEPER State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. TRANSFER AGENT As transfer agent, Federated Services Company maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES AGREEMENT This arrangement permits the payment of fees to Federated Shareholder Services and financial institutions to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balance; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Trustees expect that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal period ending October 31,1995, the Fund paid Shareholder Services fees in the amount of $232,505, all of which was waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The Fund calculates its yield based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. For the seven-day period ended October 31, 1995, the yield for Institutional Service Shares was 3.36%, and the yield for BayFunds shares was 3.32%. EFFECTIVE YIELD The Fund calculates its effective yield by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended October 31, 1995, the effective yield for Institutional Service was 3.41%, and the effective yield for BayFunds Shares was 3.37%. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal rate for individuals) and assuming that income is 100% exempt. For the seven-day period ended October 31, 1995, the tax-equivalent yield for Institutional Service Shares was 6.94%, and the tax-equivalent yield for BayFunds Shares was 6.86%. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a "tax-free" investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1995 STATE OF MASSACHUSETTS TAX BRACKET: Combined Federal and State:27.00% 40.00% 43.00% 48.00% 51.60% Joint Return$1-39,000$39,001-94,250 $94,251-143,600$143,601-256,500 OVER $256,500 Single Return$1-23,350 $23,351-56,550$56,551-117,950$117,951-256,500 OVER $256,500 Tax-Exempt Yield Taxable Yield Equivalent 1.50% 2.05% 2.50% 2.63% 2.88% 3.10% 2.00 2.74 3.33 3.51 3.85 4.13 2.50 3.42 4.17 4.39 4.81 5.17 3.00 4.11 5.00 5.26 5.77 6.20 3.50 4.79 5.83 6.14 6.73 7.23 4.00 5.48 6.67 7.02 7.69 8.26 4.50 6.16 7.50 7.89 8.65 9.30 5.00 6.85 8.33 8.77 9.62 10.33 5.50 7.53 9.17 9.65 10.58 11.36 6.00 8.22 10.00 10.53 11.54 12.40 Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. If you itemize deductions, your taxable yield equivalent will be lower. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of Fund shares. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local income taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is compounded by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. The Fund's average annual total returns for the one-year period ended October 31, 1995 and for the period from May 18, 1990 (date of initial public investment) through ended October 31, 1995 were 3.34% and 3.22%, respectively. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: O LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. o MONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1994, Federated Investors managed more than $31 billion in assets across approximately 43 money market funds, including 17 government, 8 prime and 18 municipal with assets approximating $17 billion, $7.4 billion and $6.6 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors's equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors's domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors's international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $2 trillion to the more than 5,500 funds available.* Federated Investors Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated Investors funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated Investors mutual funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms-- supported by more wholesalers than any other mutual fund distributor. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity concerns and market access risks unique to notes. SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus sign (+) designation. SP-2 Satisfactory capacity to pay principal and interest. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a variable rate demand feature. The first rating (long-term rating) addresses the likelihood of repayment of principal and interest when due, and the second rating (short-term rating) describes the demand characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. LONG-TERM DEBT RATINGS AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rate "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATINGS Moody's Investor Service, Inc. (Moody's) short-term ratings are designated Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG ratings is to provide investors with a simple system by which the relative investment qualities of short-term obligations may be evaluated. MIG1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad based access to the market for refinancing. MIG2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. In this case, two ratings are usually assigned, (for example, AAA/VMIG-1); the first representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the second representing an evaluation of the degree of risk associated with the demand feature. The VMIG rating can be assigned a 1 or 2 designation using the same definitions described above for the MIG rating. COMMERCIAL PAPER (CP) RATINGS P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well established industries, high rates of return on funds employed, conservative capitalization structure with moderate reliance on debt and ample asset protection, broad margins in earning coverage of fixed financial charges and high internal cash generation, well-established access to a range of financial markets and assured sources of alternate liquidity P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. LONG-TERM DEBT RATINGS AAA Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes is can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in AAA securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. NR Indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P or Moody's with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated A-1 or P-1. NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated "AAA" by S&P or "AAA" by Moody's. NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated "AA" by S&P or "AA" by Moody's. NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated "A" by S&P or Moody's. 314229303 0032603B-ISS (12/95) BAYFUNDS SHARES MASSACHUSETTS MUNICIPAL CASH TRUST PROSPECTUS DECEMBER 31, 1995 ANNUAL REPORT TO SHAREHOLDERS OCTOBER 31, 1995 BAYFUNDS Federated Securities Corp. Distributor December 31, 1995 Printed on Recycled Paper Z00403 Cusip 314229832 G00507-01 (12/95) Mutual Funds At BayBank MASSACHUSETTS MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) BAYFUNDS Shares PROSPECTUS The BayFunds Shares of Massachusetts Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified investment portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. The investment objective of the Fund is to provide current income which is exempt from federal regular income tax, and Massachusetts state income tax, consistent with stability of principal. The Fund invests primarily in short-term Massachusetts municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Massachusetts or its political subdivisions and financing authorities, but which are exempt from the federal regular and Massachusetts state income tax. Shareholders can invest, reinvest, or redeem BayFunds Shares at any time with no sales loads or contingent deferred sales charges imposed by the Fund. Shareholders have access to other portfolios in BayFunds. THE BAYFUNDS SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF BAYBANK, N.A., OR ITS SUBSIDIARIES, ARE NOT ENDORSED OR GUARANTEED BY BAYBANK, N.A., OR ITS SUBSIDIARIES, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTING IN THESE SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. This prospectus contains the information you should read and know before you invest in BayFunds Shares. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information for BayFunds Shares dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-BAYFUND (1-800-229-3863). To obtain other information or to make inquiries about the Fund, contact the Fund at the address listed at the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 - -------------------------------------------------------------------------------- TABLE OF CONTENTS KEY FACTS General Information........................................................... 1 Summary of Fund Expenses...................................................... 2 Financial Highlights--BayFunds Shares......................................... 3 - -------------------------------------------------------------------------------- MATCHING THE FUND TO YOUR INVESTMENT NEEDS Investment Objective and Policies............................................. 4 Acceptable Investments........................................................ 4 Investment Limitations........................................................ 8 - -------------------------------------------------------------------------------- SHAREHOLDER MANUAL Pricing of Shares............................................................. 8 How to Buy Shares............................................................. 9 By Phone..................................................................9 By Mail...................................................................9 By Wire..................................................................10 Through BayBanks Offices.................................................10 Corporate Customers/Capital Markets Customers..................................................... 10 Automatic Investment Program..................................................10 How to Exchange Shares........................................................11 By Phone.................................................................11 By Mail..................................................................12 Through BayBanks Offices.................................................12 How to Redeem Shares..........................................................12 Signature Guarantees.....................................................12 By Phone.................................................................13 By Mail..................................................................13 By Wire..................................................................13 Through BayBanks Offices.................................................13 - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION YOU SHOULD KNOW Dividends and Distributions...................................................14 Tax Information...............................................................14 Performance Information.......................................................15 Management, Distribution and Administration..............................................................18 Other Classes of Shares.......................................................20 Financial Highlights--Institutional Service Shares..............................................................21 Financial Statements..........................................................22 Report of Independent Public Accountants..........................................................34 - ------------------------------------------------------------------------------- KEY FACTS GENERAL INFORMATION As a shareholder of the BayFunds Shares class (the "Shares") of the Fund, you have access to all of the portfolios of BayFunds, an open-end, management investment company. BayFunds consists of five separate, professionally managed investment portfolios with distinct investment objectives and policies. As of the date of this prospectus, BayFunds offers shares in five portfolios: BAYFUNDS MONEY MARKET PORTFOLIO SEEKS TO PROVIDE CURRENT INCOME CONSISTENT WITH STABILITY OF PRINCIPAL AND LIQUIDITY, BY INVESTING IN A PORTFOLIO OF MONEY MARKET INSTRUMENTS WITH REMAINING MATURITIES OF 397 DAYS OR LESS. BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO SEEKS TO PROVIDE CURRENT INCOME CONSISTENT WITH STABILITY OF PRINCIPAL AND LIQUIDITY, BY INVESTING, UNDER NORMAL MARKET CONDITIONS, AT LEAST 65% OF THE VALUE OF ITS TOTAL ASSETS IN U.S. TREASURY OBLIGATIONS WITH REMAINING MATURITIES OF 397 DAYS OR LESS. BAYFUNDS SHORT TERM YIELD PORTFOLIO SEEKS A HIGH LEVEL OF CURRENT INCOME CONSISTENT WITH PRESERVATION OF CAPITAL, BY INVESTING IN A DIVERSIFIED PORTFOLIO OF HIGH-GRADE DEBT OBLIGATIONS. THIS FUND WILL MAINTAIN A DOLLAR-WEIGHTED AVERAGE MATURITY OF THREE YEARS OR LESS. BAYFUNDS BOND PORTFOLIO SEEKS TO ACHIEVE HIGH CURRENT INCOME AND CAPITAL APPRECIATION, BY INVESTING, UNDER NORMAL MARKET AND ECONOMIC CONDITIONS, AT LEAST 65% OF THE VALUE OF ITS TOTAL ASSETS IN BONDS. BAYFUNDS EQUITY PORTFOLIO SEEKS TO PROVIDE LONG-TERM CAPITAL APPRECIATION, BY INVESTING, UNDER NORMAL MARKET AND ECONOMIC CONDITIONS, AT LEAST 65% OF THE VALUE OF ITS TOTAL ASSETS IN A BROADLY DIVERSIFIED PORTFOLIO OF EQUITY SECURITIES, WITH CURRENT INCOME AS A SECONDARY CONSIDERATION. ------------------------------------------------------------------------------ SUMMARY OF FUND EXPENSES BAYFUNDS SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................... None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)..........None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................................................ None Redemption Fee (as a percentage of amount redeemed, if applicable)............................... None Exchange Fee..................................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)............................................................... 0.30% 12b-1 Fee...................................................................................... None Total Other Expenses............................................................................ 0.30% Shareholder Services Fee (after waiver) (2).......................................... 0.00% Total Operating Expenses (3)........................................................... 0.60%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The maximum shareholder services fee is 0.25%. (3) The total operating expenses would have been 1.05% absent the voluntary waivers of a portion of the management fee and the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of BayFunds Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Management, Distribution and Administration." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period....... $ 6 $ 19 $ 33 EXAMPLE: 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....... $ 75
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. - ------------------------------------------------------------------------------ MASSACHUSETTS MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--BAYFUNDS SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) REFERENCE IS MADE TO THE REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON PAGE 34.
YEAR ENDED OCTOBER 31, 1995 1994 1993(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------------------------- Net investment income 0.03 0.02 0.01 - --------------------------------------------------------------- LESS DISTRIBUTIONS - --------------------------------------------------------------- Distributions from net investment income (0.03) (0.02) (0.01) - --------------------------------------------------------------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------------------------- ------- ------- ------- TOTAL RETURN (b) 3.30% 2.05% 1.25% - --------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------------------------- Expenses 0.60% 0.64% 0.65%* - --------------------------------------------------------------- Net investment income 3.25% 2.09% 1.85%* - --------------------------------------------------------------- Expense waiver/reimbursement (c) 0.45% 0.35% 0.43%* - --------------------------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------------------------- Net assets, end of period (000 omitted) $46,580 $41,912 $18,143 - ---------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from March 8, 1993 (date of initial public investment) to October 31, 1993. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) ------------------------------------------------------------------------------ MATCHING THE FUND TO YOUR INVESTMENT NEEDS IF YOU ARE SEEKING CURRENT INCOME WHICH IS EXEMPT FROM FEDERAL REGULAR INCOME TAX AND MASSACHUSETTS STATE INCOME TAX CONSISTENT WITH LIQUIDITY AND STABILITY OF PRINCIPAL, THEN THE FUND MAY BE A SUITABLE INVESTMENT. THE FUND SEEKS TO MAINTAIN A STABLE $1.00 SHARE PRICE, REFERRED TO AS THE NET ASSET VALUE PER SHARE, BY INVESTING IN A PORTFOLIO OF SHORT-TERM MASSACHUSETTS MUNICIPAL SECURITIES. WHILE THE FUND CANNOT GUARANTEE A STABLE SHARE PRICE, THE SHORT-TERM NATURE OF ITS INVESTMENTS HELPS TO MINIMIZE PRICE FLUCTUATIONS. INVESTMENT OBJECTIVE AND POLICIES The investment objective of the Fund is to provide current income which is exempt from federal regular income tax, and Massachusetts state income tax consistent with stability of principal. The investment objective cannot be changed without approval of shareholders. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. Interest income of the Fund that is exempt from the income taxes described above retains its tax-free status when distributed to the Fund's shareholders. However, income distributed by the Fund may not necessarily be exempt from state or municipal taxes in states other than Massachusetts. The Fund pursues its investment objective by investing primarily in a portfolio of Massachusetts municipal securities with remaining maturities of 13 months or less at the time of purchase by the Fund. As a matter of investment policy, which cannot be changed without the approval of shareholders, the Fund invests its assets so that at least 80% of its annual interest income is exempt from federal regular income tax and Massachusetts state income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without the approval of shareholders. Shareholders will be notified before any material changes in these policies become effective. ACCEPTABLE INVESTMENTS The Fund invests primarily in debt obligations issued by or on behalf of Massachusetts and its political subdivisions and financing authorities, and obligations of other states, territories and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Massachusetts state income tax imposed upon non-corporate taxpayers. MASSACHUSETTS MUNICIPAL SECURITIES. Massachusetts municipal securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Massachusetts municipal securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. ISSUERS OF GENERAL OBLIGATION BONDS INCLUDE STATES, COUNTIES, CITIES, TOWNS, AND OTHER GOVERNMENTAL UNITS. The two principal classifications of municipal securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. Examples of Massachusetts municipal securities include, but are not limited to: tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes ("BANs") that are intended to be refinanced through a later issuance of longer-term bonds; municipal commercial paper and other short-term notes; variable rate demand notes; municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and participation, trust and partnership interests in any of the foregoing obligations. MASSACHUSETTS INVESTMENT RISKS. Yields on Massachusetts municipal securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Massachusetts municipal securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Massachusetts municipal securities acceptable for purchase by the Fund could become limited. The Fund may invest in Massachusetts municipal securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Massachusetts municipal securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Massachusetts municipal securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION. The Fund is a non-diversified investment portfolio. As such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in the Fund, therefore, will entail greater risk than would exist in a diversified investment portfolio because the higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund's portfolio. Any economic, political, or regulatory developments affecting the value of the securities in the Fund's portfolio will have a greater impact on the total value of the portfolio than would be the case if the portfolio were diversified among more issuers. The Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that at the end of each quarter of the taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer; beyond that, no more than 25% of its total assets are invested in securities of a single issuer. 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 rate 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 associations and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying municipal securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities and may be considered to be illiquid. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation certificate on any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit or insurance. Any bankruptcy, receivership or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities or another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are considered liquid. To the extent restricted securities are deemed to be illiquid, the Fund will limit their purchase, together with other securities considered to be illiquid, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more/less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Massachusetts municipal securities is subject to the federal alternative minimum tax. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. - ------------------------------------------------------------------------------ SHAREHOLDER MANUAL SHARES ARE SOLD "NO-LOAD"--WITHOUT A SALES CHARGE. YOUR MINIMUM INITIAL INVESTMENT IS ONLY $2,500 OR $500 IF YOU PARTICIPATE IN THE AUTOMATIC INVESTMENT PROGRAM. PRICING OF SHARES The Fund attempts to stabilize the net asset value of its Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. THE TERM "NET ASSET VALUE" PER SHARE REFERS TO THE VALUE OF ONE FUND SHARE. The Fund cannot guarantee that its net asset value will always remain at $1.00 per Share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. The Fund offers Shares only on days on which the New York Stock Exchange and the Federal Reserve Bank of Boston are open for business ("Business Days"). If BayBank Systems, Inc. (the "Shareholder Servicing Agent") receives your purchase order on a non-Business Day, the order will not be executed until the next Business Day in accordance with the Distributor's procedures. The Fund and the Distributor reserve the right to reject any purchase request. HOW TO BUY SHARES MINIMUM INVESTMENT. You can become a shareholder with an initial investment of $2,500, or $500 if you participate in the Automatic Investment Program. You must submit a completed application at the time of your initial purchase. Subsequent investments must be in amounts of at least $100, or if you participate in the Automatic Investment Program, the minimum for additional Share purchases is $50. The Fund may waive any investment minimums from time to time. In addition, the Fund may reduce or waive investment minimums for investors purchasing through qualified BayBanks accounts. If your purchase order is received in good order and accepted by the Fund from Federated Services Company (the "Transfer Agent") by 1:00 p.m. (Eastern time) on a Business Day, it will be executed at the net asset value next determined and your Shares will begin earning dividends that day. The Transfer Agent will not communicate your purchase order to the Fund until the Shareholder Servicing Agent has received the purchase price in Federal funds or other immediately available funds. If your purchase order is received in good order and accepted by the Fund from the Transfer Agent after 1:00 p.m. (Eastern time), and prior to 4:00 p.m. (Eastern time), it will be executed at the net asset value next determined and Shares will begin earning dividends the next Business Day. When you purchase Shares by check, the order is considered received when the check is converted into federal funds, normally within two Business Days. The Shareholder Servicing Agent is responsible for the prompt transmission of purchase orders received in good order to the Transfer Agent. YOU MAY BUY SHARES BY TELEPHONE, MAIL, WIRE, OR IN PERSON THROUGH BAYBANKS OFFICES. BY PHONE. Once you are a shareholder, you may purchase additional Shares by calling 1-800-BAYFUND (1-800-229-3863). You must have previously authorized the Fund in writing to accept telephone requests. If you have not done so, call 1-800-BAYFUND to receive the necessary form and information on this Fund feature. The Fund uses reasonable procedures (incuding a shareholder identity test and sending a written confirmation of each telephone transaction) to confirm that instructions given by telephone are genuine. However, the Fund is not responsible for the authenticity of telephone instructions or for any losses caused by fraudulent or unauthorized telephone instructions if the Fund reasonably believed that the instructions were genuine. The establishment of certain types of deposit account relationships with BayBanks may permit the direct deduction of your purchase price from your BayBanks deposit account. Please call 1-800-BAYFUND to determine whether your BayBanks deposit account qualifies. For the protection of investors, all phone communications may be recorded where not otherwise prohibited by law. BY MAIL. If you make your initial Share purchase by mail, you must send a completed application, and a check payable to the Fund, to: BayFunds P.O. Box 889 Burlington, MA 01803 You may obtain an application by calling 1-800-BAYFUND. You may make subsequent investments in the Fund at any time by sending a check for a minimum of $100 payable to the Fund at the following address: BayFunds P.O. Box 889 Burlington, MA 01803 along with either (a) the detachable form that regularly accompanies confirmation of a prior transaction, (b) a subsequent order form that may be enclosed in the Fund mailing or can be obtained by calling 1-800-BAYFUND, or (c) a letter stating the amount of the investment, the name of the Fund, the exact name and address of the account, and your account number. If the check does not clear, your purchase order will be cancelled. BY WIRE. If you are a shareholder, you may purchase additional Shares by wire to BayBanks, as agent for the Shareholder Servicing Agent, as follows: BayBanks ABA Number: 0110-0174-2 Attention: Mutual Funds Services For Credit to: BayFunds Shares, Massachusetts Municipal Cash Trust; Account 37153931 Further Credit to: shareholder name and account number Shares cannot be purchased by wire on days on which the New York Stock Exchange and the Federal Reserve Wire System are not open for business and on the following holidays: Martin Luther King Day, Columbus Day, or Veterans' Day. THROUGH BAYBANKS OFFICES. You may place an order to purchase Shares in person through designated BayBanks offices. Purchase orders placed through BayBanks offices typically would be received by the Transfer Agent within two Business Days. If you want more prompt processing, you should consider another method, such as by phone, as described above. CORPORATE CUSTOMERS/CAPITAL MARKETS CUSTOMERS. Corporate and/or Capital Markets customers of BayBanks interested in purchasing Shares should consult their account relationship managers for procedures applicable to their accounts or call 1-800-554-3311. This prospectus should be read in conjunction with any materials provided by BayBanks regarding such procedures. AUTOMATIC INVESTMENT PROGRAM YOU CAN BUY SHARES CONVENIENTLY THROUGH THE AUTOMATIC INVESTMENT PROGRAM. When you participate in the Automatic Investment Program, you can purchase additional Shares in minimum amounts of $50. You must previously have authorized in writing the total dollar amount to be deducted automatically from eligible BayBanks deposit accounts or your deposit account maintained at a domestic financial institution which is an automated clearing house member, and the frequency of the deductions. The funds will be invested in Shares at the net asset value next determined. The Fund may reduce or waive the investment minimums for investors purchasing through qualified BayBanks accounts. HOW TO EXCHANGE SHARES IF YOUR INVESTMENT NEEDS CHANGE, YOU CAN EASILY REDEEM FUND SHARES AND PURCHASE SHARES OF ANY BAYFUNDS' PORTFOLIO AT NO CHARGE. BayFunds consists of the BayFunds Money Market Portfolio, the BayFunds U.S. Treasury Money Market Portfolio, the BayFunds Short Term Yield Portfolio, the BayFunds Bond Portfolio and the BayFunds Equity Portfolio. As a shareholder, you have access to all of these portfolios ("Participating Funds") of BayFunds. Because the BayFunds offer separate classes of shares, Fund shareholders (other than certain trust and institutional investors, including qualified employee benefit plans) must purchase shares of the Investment Shares class of these Participating Funds. You may redeem Shares having a net asset value of at least $100 and purchase shares of any other Participating Funds in which you have an account. The minimum initial investment to establish an account in any other Participating Fund is $2,500, or $500 if you participate in the Automatic Investment Program. BayFunds does not charge any fees for these transactions. Shares will be redeemed at the net asset value next determined and Shares of the Participating Fund to be acquired will be purchased at the net asset value per share next determined after receipt of the request by the Transfer Agent on a Business Day. If you do not have an account in the Participating Fund whose shares you want to acquire, you must establish an account. Prior to any such transaction, you must receive a copy of the current prospectus of the Participating Fund into which a purchase is to be effected. This account will be registered in the same name and you will receive your dividends and distributions as an automatic reinvestment in additional shares. If the new account registration (name, address, and taxpayer identification number) is not identical to your existing account, please call 1-800-BAYFUND for the necessary new account or transfer procedures. You may find this privilege useful if your investment objectives or market outlook should change after you invest in the Fund or in any of the Participating Funds. You may obtain further information on this privilege and obtain a prospectus by calling 1-800-BAYFUND. The exchange privilege is available to shareholders resident in any state in which Participating Funds' shares being acquired may be sold. BayFunds reserves the right to terminate this privilege at any time on 60 days' notice. Shareholders will be notified if this privilege is terminated. Depending on the circumstances, an exchange with a fluctuating net asset value Participating Fund may generate a short-term or long-term capital gain or loss for federal income tax purposes. BY PHONE. You may provide instructions to redeem Shares and purchase shares of any Participating Funds by calling 1-800-BAYFUND. You must have previously authorized the Fund in writing to accept telephone requests. If you have not done so, call 1-800-BAYFUND to receive the necessary form and information on this Fund feature. The Fund uses reasonable procedures (including a shareholder identity test and sending a written confirmation of each telephone transaction) to confirm that instructions given by telephone are genuine. However, the Fund is not responsible for the authenticity of telephone instructions or for any losses caused by fraudulent or unauthorized telephone instructions if the Fund reasonably believed that the instructions were genuine. BY MAIL. You may send a written request to redeem Shares and purchase shares of any Participating Funds to: BayFunds P.O. Box 889 Burlington, MA 01803 Your written request must include your name and tax identification number; the name of the Fund, the dollar amount or number of Shares to be redeemed; the name of the Participating Fund in which shares are to be purchased; and your account number. Your request must be signed by the registered owner(s) exactly as required by the account application. THROUGH BAYBANKS OFFICES. You may place an order to redeem Shares and purchase shares of any Participating Funds in person through designated BayBanks offices. Orders received through designated BayBanks offices typically would be received by the Transfer Agent within two Business Days. For more prompt processing, you should consider another method, such as exchanging shares by phone, as described above. HOW TO REDEEM SHARES WHEN YOU SELL YOUR SHARES--"REDEEM" THEM--YOU RECEIVE THE NET ASSET VALUE PER SHARE NEXT DETERMINED AFTER YOU HAVE MADE THE REQUEST. THERE ARE NO FEES OR OTHER REDEMPTION CHARGES (EXCEPT FOR REDEMPTIONS BY WIRE). YOU MAY REDEEM SOME OR ALL OF YOUR INVESTMENT. The Fund redeems Shares at the net asset value next determined after the Fund has received your redemption request from the Transfer Agent in proper form. Redemption requests can be executed only on Business Days. If your redemption request is received by the Shareholder Servicing Agent on a non-Business Day, the Transfer Agent will not communicate your redemption request to the Fund until the next Business Day. Redemption proceeds may be credited to an eligible BayBanks deposit account, paid by check, or paid by wire, as you previously designated in writing. The Fund ordinarily will make payment for Shares redeemed after proper receipt from the Transfer Agent of the redemption request and of all documents in proper form within one Business Day to an eligible BayBanks deposit account, within five Business Days if you requested redemption proceeds by check, or the same day by wire if the Fund receives your redemption request from the Transfer Agent by 12:00 noon (Eastern time) on the day of redemption. Shares redeemed and wired the same day will not receive the dividend declared on the day of redemption. SIGNATURE GUARANTEES. If you request a redemption for an amount in excess of $25,000 (no limitation if the proceeds are being credited to your BayBanks deposit account), a redemption of any amount to be sent to an address other than your address of record with the Fund, the transfer of the registration of Shares, or a redemption of any amount payable to someone other than yourself as the shareholder of record, your signature must be guaranteed on a written redemption request by a trust company or insured commercial bank; an insured savings association or savings bank; a member firm of a national or regional stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Transfer Agent has adopted standards for accepting signature guarantees from the above institutions. The Fund may elect in the future to limit eligible signature guarantors to institutions that are members of a signature guarantee program. The Fund does not accept signatures guaranteed by a notary public. The Fund and the Transfer Agent reserve the right to amend these standards at any time without notice. If you have a question about the proper form for redemption requests, call 1-800-BAYFUND. YOU MAY REDEEM SHARES BY PHONE, MAIL, WIRE OR THROUGH BAYBANKS OFFICES. BY PHONE. You may redeem Shares by calling 1-800-BAYFUND. You must have previously authorized the Fund in writing to accept telephone requests. If you have not done so, call 1-800-BAYFUND to receive the necessary form. In the event of drastic economic or market changes, you may experience difficulty in redeeming by telephone. If this occurs, you should consider another method of redemption, such as by mail or by wire. See below. The Fund uses reasonable procedures (including a shareholder identity test and sending a written confirmation of each telephone transaction) to confirm that instructions given by telephone are genuine. However, the Fund is not responsible for the authenticity of telephone instructions or for any losses caused by fraudulent or unauthorized telephone instructions if the Fund reasonably believed that the instructions were genuine. BY MAIL. You may redeem Shares by submitting a written request for redemption to: BayFunds P.O. Box 889 Burlington, MA 01803 Your written request must include your name and tax identification number, the Fund's name, the dollar amount or number of Shares to be redeemed, and your account number. Your request must be signed by the registered owner(s) exactly as required by the account application. BY WIRE. You may redeem Shares by wire (see "How to Buy Shares--By Wire") or by calling 1-800-BAYFUND. Redemption proceeds of at least $1,000 will be wired directly to the domestic commercial bank and account you previously designated in writing. You are charged a fee for each wire redemption and the fee is deducted from your redemption proceeds. The Fund reserves the right to wire redemption proceeds within seven days after receiving the redemption order if, in its judgment, an earlier payment could adversely affect the Fund. The Fund also reserves the right to terminate or modify the telephone and wire redemption procedures at any time. In that event, shareholders would be promptly notified. Neither the Fund, the Transfer Agent, the Sub-Transfer Agent, nor the Shareholder Servicing Agent will be responsible for the authenticity of redemption instructions received by phone. THROUGH BAYBANKS OFFICES. You may place an order to redeem Shares in person through designated BayBanks offices. Redemption orders received through designated BayBanks offices typically would be received by the Transfer Agent within two Business Days. For more prompt processing, you should consider another method, such as by phone, as described above. - ------------------------------------------------------------------------------- ADDITIONAL INFORMATION YOU SHOULD KNOW MINIMUM BALANCE. Due to the high cost of maintaining accounts with low balances, the Fund may redeem your Shares and send you the proceeds if, due to shareholder redemptions your account balance falls below a minimum value of $1,000. However, before Shares are redeemed to close an account, the shareholder will be notified in writing and given 60 days to purchase additional Shares to meet the minimum balance requirement. The Fund reserves the right to amend this standard upon 60 days' prior written notice to shareholders. The Fund also reserves the right to redeem Shares involuntarily or make payment for redemptions in the form of securities if it appears appropriate to do so in light of the Fund's responsibilities under the Investment Company Act of 1940. CONFIRMATIONS AND STATEMENTS. Confirmations of each purchase, exchange or redemption are sent to each shareholder. Monthly statements are sent to report transactions as well as dividends paid during the month. The Fund may suspend or terminate its practice of confirming each transaction at any time without notice. DIVIDENDS AND DISTRIBUTIONS YOU EARN DIVIDENDS DAILY AND RECEIVE THEM MONTHLY AS AN AUTOMATIC REINVESTMENT IN ADDITIONAL SHARES. Dividends from the Fund's net investment income are declared daily to shareholders of record immediately following the 1:00 p.m. (Eastern time) pricing of Shares. Dividends are paid monthly within five Business Days after the end of such calendar month. The Fund does not expect to realize any net long-term capital gains. However, if any such gains are realized, they will be distributed to shareholders at least annually. You will receive your dividends and your distributions as an automatic reinvestment in additional Shares at the net asset value next determined on the payment dates. TAX INFORMATION THIS DISCUSSION OF TAXES IS FOR GENERAL INFORMATION ONLY. PLEASE CONSULT YOUR OWN TAX ADVISER ABOUT YOUR PARTICULAR SITUATION. FEDERAL INCOME TAX. The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. INTEREST ON SOME MUNICIPAL SECURITIES MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. MASSACHUSETTS TAX CONSIDERATIONS. Under existing Massachusetts laws, distributions made by the Fund will not be subject to Massachusetts personal income taxes to the extent that such distributions qualify as exempt interest dividends under the Internal Revenue Code, and represent (i) interest or gain on obligations issued by the Commonwealth of Massachusetts, its political subdivisions or agencies; or (ii) interest on obligations of the United States, its territories or possessions to the extent exempt from taxation by the states pursuant to federal law. Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions may be subject to Massachusetts personal income taxes. Shareholders subject to the Massachusetts corporate excise tax must include all dividends paid by the Fund in their net income, and the value of their shares of stock in the Fund in their net worth, when computing the Massachusetts corporate excise tax. OTHER STATE AND LOCAL TAXES. Income from the Fund is not necessarily free from taxes in states other than Massachusetts. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. PERFORMANCE INFORMATION From time to time, in advertisements or in reports to shareholders, the performance, total return and yield of the Fund may be quoted and compared to those of other mutual funds with similar investment objectives and to relevant money market indices or to rankings prepared by independent services or other financial or industry publications that monitor the performance of mutual funds. For example, the performance of the Fund may be compared to data prepared by Lipper Analytical Services, Inc., a widely recognized independent service which monitors the performance of mutual funds. National financial publications in which performance and yield data are reported may include The Wall Street Journal, The New York Times, Forbes, or Money magazine. Publications of a local or regional nature, such as The Boston Globe or The Boston Herald, may also be used in comparing the performance, total return and yield of the Fund. YIELD. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on the investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield but, when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. TAX-EQUIVALENT YIELD. The tax-equivalent yield for the Fund is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% federal tax rate and the 12% regular personal income tax rate imposed by Massachusetts and assuming that income earned by the Fund is 100% tax-exempt on a regular federal, state, and local basis. For the seven day periods ended October 31, 1995, and November 30, 1995, the tax-equivalent yields for the Shares were 6.86% and 6.82%, respectively. TOTAL RETURN. Total return represents the change, over a specified period of time, in the value of an investment in the Shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. Yield, effective yield, tax-equivalent yield and total return will be calculated separately for BayFunds Shares and Institutional Service Shares. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax*, and is often free from state and local taxes as well. As the table below indicates, a "tax-free" investment is an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1995 STATE OF MASSACHUSETTS - -------------------------------------------------------------------------------- TAX BRACKET: FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60% COMBINED FEDERAL AND STATE 27.00% 40.00% 43.00% 48.00% 51.60% - -------------------------------------------------------------------------------- JOINT RETURN: $1- $39,001- $94,251- $143,601- Over 39,000 94,250 143,600 256,500 $ 256,500 SINGLE RETURN: $1- $23,351- $56,551- $117,951- Over 23,350 56,550 117,950 256,500 $ 256,500 - -------------------------------------------------------------------------------- TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT - -------------------------------------------------------------------------------- 1.50% 2.05% 2.50% 2.63% 2.88% 3.10% 2.00 2.74 3.33 3.51 3.85 4.13 2.50 3.42 4.17 4.39 4.81 5.17 3.00 4.11 5.00 5.26 5.77 6.20 3.50 4.79 5.83 6.14 6.73 7.23 4.00 5.48 6.67 7.02 7.69 8.26 4.50 6.16 7.50 7.89 8.65 9.30 5.00 6.85 8.33 8.77 9.62 10.33 5.50 7.53 9.17 9.65 10.58 11.36 6.00 8.22 10.00 10.53 11.54 12.40
Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart is for illustrative purposes only. It is not an indicator of past or future performance of Fund shares. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local income taxes. MANAGEMENT, DISTRIBUTION AND ADMINISTRATION The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees ("Trustees") has established two classes of shares, BayFunds Shares and Institutional Service Shares. This prospectus relates only to BayFunds Shares of the Fund. Shares are designed primarily for individuals, partnerships and corporations who seek a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio limited to short-term Massachusetts municipal securities. The Fund is not likely to be a suitable investment for non-Massachusetts taxpayers or retirement plans since it intends to invest primarily in Massachusetts municipal securities. AS A SHAREHOLDER, YOU ARE ENTITLED TO VOTE ON CERTAIN MATTERS. VOTING RIGHTS. Each Share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights except that in matters affecting only a particular Fund or class, only shares of that particular Fund or class are entitled to vote. As of December 4, 1995, John & Co., Burlington, Massachusetts, acting in various capacities for numerous accounts, was the owner of record of 48,086,126 shares (100%) of the Fund, and therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. As a Massachusetts business trust, the Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for the election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting of the shareholders shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of all series of the Trust entitled to vote. A BOARD OF TRUSTEES SUPERVISES FEDERATED MUNICIPAL TRUST. The Trust is managed by a Board of Trustees. The Trustees are responsible for managing the business affairs of the Trust and for exercising all of the powers of the Trust except those reserved for the shareholders. An Executive Committee handles the Trustees' responsibilities between meetings of the Trustees. INVESTMENT ADVISER ACTING UNDER THE DIRECTION OF THE TRUSTEES, THE ADVISER MAKES INVESTMENT DECISIONS FOR THE FUND. Pursuant to an investment advisory contract (the "Advisory Contract") with the Trust, investment decisions for the Fund are made by Federated Management, the Fund's investment adviser (the "Adviser") subject to direction by the Trustees. The Adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase or sale of portfolio instruments, for which it receives an annual fee from the Fund. ADVISORY FEES. The Adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. Under the Advisory Contract, which provides for the voluntary waiver of the advisory fee by the Adviser, the Adviser may voluntarily waive some or all of the advisory fee. This does not include reimbursement to the Fund of any expenses incurred by shareholders who use the transfer agent's sub-accounting facilities. The Adviser can terminate this voluntary waiver of expenses at any time in its sole discretion. The Adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. THE ADVISER HAS EXTENSIVE INVESTMENT EXPERIENCE. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. Both the Fund and the Adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sales, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION FEDERATED SECURITIES CORP. IS THE PRINCIPAL DISTRIBUTOR FOR SHARES OF THE FUND. Federated Securities Corp. is the principal distributor (the "Distributor") for the Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICING ARRANGEMENTS. The Distributor may pay financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide certain services to shareholders. These services may include, but are not limited to, distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of shares. Any fees paid for these services by the Distributor will be reimbursed by the Adviser and not the Fund. The Glass-Steagall Act prohibits a depository institution (such as a commercial bank or a savings and loan association) from being an underwriter or distributor of most securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the administrative capacities described above or should Congress relax current restrictions on depository institutions, the Trustees will consider appropriate changes in the administrative services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state law. ADMINISTRATION VARIOUS ORGANIZATIONS PROVIDE SERVICES TO THE FUND. ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM AVERAGE AGGREGATE ADMINISTRATIVE FEE DAILY NET ASSETS 0.15 of 1% on the first $250 million 0.125 of 1% on the next $250 million 0.10 of 1% on the next $250 million 0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Administrative Services may choose voluntarily to waive a portion of its fee. SHAREHOLDER SERVICING AGENT. BayBank Systems, Inc., Waltham, Massachusetts, is the Fund's shareholder servicing agent. The Fund may pay the Shareholder Servicing Agent a fee based on the average daily net asset value of Shares for which it provides shareholder services. These shareholder services include, but are not limited to, distributing prospectuses and other information, providing shareholder assistance and communicating or facilitating purchases and redemptions of Shares. This fee will be equal to .25 of 1% of the Fund's average daily net assets for which the Shareholder Servicing Agent provides services; however, the Shareholder Servicing Agent may choose voluntarily to waive all or a portion of its fee at any time. OTHER CLASSES OF SHARES The Fund also offers another class of shares called Institutional Service Shares. Institutional Service Shares are sold to accounts for which financial institutions act in an agency capacity. Investments in Institutional Service Shares are subject to a minimum initial investment of $25,000. Institutional Service Shares are sold at net asset value. Institutional Service Shares and BayFund Shares are subject to certain of the same expenses. Institutional Service Shares are distributed with no 12b-1 fees but are subject to shareholder services fees. Expense differences, however, between Institutional Service Shares and BayFund Shares may affect the performance of each class. To obtain more information and a prospectus for Institutional Service Shares, investors may call 1-800-235-4669. - -------------------------------------------------------------------------------- MASSACHUSETTS MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) REFERENCE IS MADE TO THE REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON PAGE 34.
YEAR ENDED OCTOBER 31, 1995 1994 1993 1992 1991 1990(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------- Net investment income 0.03 0.02 0.02 0.03 0.05 0.03 - ------------------------------------------------------- --------- --------- --------- --------- --------- --------- LESS DISTRIBUTIONS - ------------------------------------------------------- Dividends from net investment income (0.03) (0.02) (0.02) (0.03) (0.05) (0.03) - ------------------------------------------------------- --------- --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------------- --------- --------- --------- --------- --------- --------- TOTAL RETURN (b) 3.34% 2.14% 1.99% 2.87% 4.63% 2.59% - ------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------- Expenses 0.55% 0.55% 0.53% 0.34% 0.30% 0.17%* - ------------------------------------------------------- Net investment income 3.30% 2.12% 1.97% 2.82% 4.48% 5.66%* - ------------------------------------------------------- Expense waiver/reimbursement (c) 0.45% 0.35% 0.43% 0.55% 0.69% 0.57%* - ------------------------------------------------------- SUPPLEMENTAL DATA - ------------------------------------------------------- Net assets, end of period (000 omitted) $99,628 $90,013 $84,524 $85,570 $81,681 $63,483 - -------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from May 18, 1990 (date of initial public investment) to October 31, 1990. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ -------------------------------------------------------------------------- ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--99.3% - ---------------------------------------------------------------------------------------- MASSACHUSETTS--99.3% -------------------------------------------------------------------------- $ 3,535,000 Attleboro, MA, (Lot A), 4.10% BANs, 12/14/1995 NR(3) $ 3,535,408 -------------------------------------------------------------------------- 2,000,000 Attleboro, MA, (Lot B), 5.25% BANs, 2/14/1996 NR(3) 2,000,817 -------------------------------------------------------------------------- 1,250,000 Attleboro, MA, (Lot B), 5.50% BANs, 2/14/1996 NR(3) 1,251,366 -------------------------------------------------------------------------- 1,500,000 Attleboro, MA, 4.10% BANs, 12/14/1995 NR(3) 1,500,347 -------------------------------------------------------------------------- 620,000 Billerica, MA, LT GO Bonds, 7.25% (MBIA Insurance Corporation INS), 10/15/1996 NR(1) 638,493 -------------------------------------------------------------------------- 2,000,000 Boston, MA Water & Sewer Commission, General Revenue Bonds (1994 Series A) Weekly VRDNs (State Street Bank and Trust Co. LOC) VMIG1 2,000,000 -------------------------------------------------------------------------- 5,000,000 (a) Clipper, MA Tax Exempt Trust Weekly VRDNs (State Street Bank and Trust Co. LIQ) VMIG1 5,000,000 -------------------------------------------------------------------------- 3,465,000 (a) Clipper, MA Tax Exempt Trust, (Series 1993-1) Weekly VRDNs (State Street Bank and Trust Co. LIQ) VMIG1 3,465,000 -------------------------------------------------------------------------- 3,000,000 Commonwealth of Massachusetts Weekly VRDNs (AMBAC INS)/(Citibank NA, New York LIQ) NR(1) 3,000,000 -------------------------------------------------------------------------- 3,500,000 Commonwealth of Massachusetts, (Series A), 3.75% CP (Union Bank of Switzerland, Zurich LIQ), Mandatory Tender 11/8/1995 P-1 3,500,000 -------------------------------------------------------------------------- 3,200,000 Framingham, MA IDA Weekly VRDNs (Perini Corp)/(Barclays Bank PLC, London LOC) A-1+ 3,200,000 -------------------------------------------------------------------------- 3,093,000 Greenfield, MA, 4.25% BANs, 9/13/1996 NR(3) 3,099,438 -------------------------------------------------------------------------- 1,000,000 Haverhill, MA, 8.875% Bonds (United States Treasury PRF), 12/1/1995 (@102) NR(1) 1,023,454 -------------------------------------------------------------------------- 300,000 Ludlow, MA Weekly VRDNs (Advanced Drainage System, Inc.)/(First National Bank of Chicago LOC) P-1 300,000 -------------------------------------------------------------------------- 4,000,000 Mashpee, MA, 4.22% BANs, 7/5/1996 NR(3) 4,001,572 -------------------------------------------------------------------------- 1,500,000 Massachusetts Bay Transit Authority, (Series C), 3.70% CP (Westdeutsche Landesbank Girozentrale LOC), Mandatory Tender 1/17/1996 SP-1+ 1,500,000 -------------------------------------------------------------------------- $ 4,000,000 Massachusetts HEFA Weekly VRDNs (Harvard University) A-1+ $ 4,000,000 --------------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ------------------------------------------------------------------------ ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ---------------------------------------------------------------------------------------- MASSACHUSETTS--CONTINUED -------------------------------------------------------------------------- 3,460,000 Massachusetts HEFA Weekly VRDNs (Newbury College)/ (Barclays Bank PLC, London LOC) P-1 3,460,000 -------------------------------------------------------------------------- 200,000 Massachusetts HEFA, (Series A) Weekly VRDNs (Brigham & Women's Hospital)/(Sanwa Bank Ltd, Osaka LOC) P-1 200,000 -------------------------------------------------------------------------- 3,410,000 Massachusetts HEFA, (Series A) Weekly VRDNs (New England Home For Little Wanderers)/(First National Bank of Boston, MA LOC) P-1 3,410,000 -------------------------------------------------------------------------- 2,900,000 Massachusetts HEFA, (Series B) Weekly VRDNs (Clark University)/(Sanwa Bank Ltd, Osaka LOC) VMIG1 2,900,000 -------------------------------------------------------------------------- 1,500,000 Massachusetts HEFA, (Series D) Weekly VRDNs (Capital Asset Program)/(MBIA Insurance Corporation INS)/(Sanwa Bank Ltd, Osaka LIQ) VMIG1 1,500,000 -------------------------------------------------------------------------- 2,400,000 Massachusetts HEFA, (Series E) Weekly VRDNs (Williams College, MA) A-1+ 2,400,000 -------------------------------------------------------------------------- 400,000 Massachusetts HEFA, (Series E) Weekly VRDNs (Capital Asset Program)/(First National Bank of Chicago LIQ)/(Sanwa Bank Ltd, Osaka LOC) VMIG1 400,000 -------------------------------------------------------------------------- 6,300,000 Massachusetts HEFA, (Series F) Weekly VRDNs (Children's Hospital of Boston) A-1+ 6,300,000 -------------------------------------------------------------------------- 2,500,000 Massachusetts HEFA, (Series G) Weekly VRDNs (Massachusetts Institute of Technology) NR(1) 2,500,000 -------------------------------------------------------------------------- 4,000,000 Massachusetts HEFA, 3.75% CP (Fallon Heathcare System)/ (Sanwa Bank Ltd, Osaka LOC), Mandatory Tender 2/22/1996 A-1+ 4,000,000 -------------------------------------------------------------------------- 5,000,000 Massachusetts HEFA, 3.80% CP (Harvard University), Mandatory Tender 1/26/1996 A-1+ 5,000,000 -------------------------------------------------------------------------- 3,000,000 Massachusetts HEFA, 3.90% CP (Fallon Heathcare System)/ (Sanwa Bank Ltd, Osaka LOC), Mandatory Tender 11/28/1995 A-1+ 3,000,000 -------------------------------------------------------------------------- 800,000 Massachusetts Municipal Wholesale Electric Company, Variable Rate Power Supply System Revenue Bonds (1994 Series C) Weekly VRDNs (Canadian Imperial Bank of Commerce, Toronto LOC) A-1+ 800,000 --------------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ------------------------------------------------------------------------ ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ---------------------------------------------------------------------------------------- MASSACHUSETTS--CONTINUED -------------------------------------------------------------------------- $ 2,400,000 Massachusetts Port Authority, (Series 1995A) Daily VRDNs (Landesbank Hessen-Thueringen, Frankfurt LOC) A-1+ $ 2,400,000 -------------------------------------------------------------------------- 3,270,000 Massachusetts State HFA, Multi-Family Housing Refunding Bonds (1995 Series A), 5.00% (MBIA Insurance Corporation INS), 7/1/1996 NR(1) 3,287,798 -------------------------------------------------------------------------- 4,000,000 Massachusetts Water Resources Authority, (Series 1994), 3.80% CP (Morgan Guaranty Trust Co., New York LOC), Mandatory Tender 12/13/1995 A-1+ 4,000,000 -------------------------------------------------------------------------- 1,000,000 Massachusetts, IFA Weekly VRDNs (Berkshire, MA School)/ (National Westminster Bank, PLC, London LOC) VMIG1 1,000,000 -------------------------------------------------------------------------- 1,300,000 Massachusetts, IFA Weekly VRDNs (Groton School)/(National Westminster Bank, PLC, London LOC) VMIG1 1,300,000 -------------------------------------------------------------------------- 8,000,000 Massachusetts, IFA Weekly VRDNs (Kendall Square Entity)/ (State Street Bank and Trust Co. LOC) P-1 8,000,000 -------------------------------------------------------------------------- 500,000 Massachusetts, IFA Weekly VRDNs (New England Deaconess Associates)/(Banque Paribas, Paris LOC) A-1 500,000 -------------------------------------------------------------------------- 1,100,000 Massachusetts, IFA, (1991 Issue), 5.25% TOBs (St. Mark's School of Southborough, Inc.)/(Barclays Bank PLC, London LOC), Mandatory Tender 1/9/1996 VMIG1 1,100,000 -------------------------------------------------------------------------- 300,000 Massachusetts, IFA, (Series 1992) Weekly VRDNs (Holyoke Water Power Co.)/(Canadian Imperial Bank of Commerce, Toronto LOC) VMIG1 300,000 -------------------------------------------------------------------------- 2,000,000 Massachusetts, IFA, (Series 1992B), 3.75% CP (New England Power Co.), Mandatory Tender 11/27/1995 A-1 2,000,000 -------------------------------------------------------------------------- 5,000,000 Massachusetts, IFA, (Series 1992B), 3.80% CP (New England Power Co.), Mandatory Tender 2/13/1996 A-1 5,000,000 -------------------------------------------------------------------------- 5,800,000 Massachusetts, IFA, (Series 1995) Weekly VRDNs (Whitehead Institute for Biomedical Research) VMIG1 5,800,000 -------------------------------------------------------------------------- 925,000 Massachusetts, IFA, (Series A) Weekly VRDNs (Hockomock YMCA)/(Bank of Nova Scotia, Toronto LOC) P-1 925,000 --------------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ------------------------------------------------------------------------ ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ---------------------------------------------------------------------------------------- MASSACHUSETTS--CONTINUED -------------------------------------------------------------------------- $ 4,000,000 Massachusetts, IFA, (Series B) Weekly VRDNs (Williston North Hampton School)/(National Westminster Bank, PLC, London LOC) A-1+ $ 4,000,000 -------------------------------------------------------------------------- 6,000,000 Massachusetts, IFA, Variable Rate Demand Revenue Bonds (Series 1995) Weekly VRDNs (Emerson College Issue)/ (Baybank, Burlington, MA LOC) P-2 6,000,000 -------------------------------------------------------------------------- 1,000,000 Massachusetts, IFA, Variable Rate Refunding Revenue Bonds 1994 Project Daily VRDNs (Showa Womens Institute Boston, Inc.)/(Fuji Bank, Ltd., Tokyo LOC) VMIG1 1,000,000 -------------------------------------------------------------------------- 5,600,000 New Bedford, MA, 4.60% BANs (Fleet National Bank, Providence, R.I. LOC), 3/15/1996 P-1 5,614,145 -------------------------------------------------------------------------- 2,500,000 North Adams, MA, 4.24% BANs, 6/30/1996 NR(3) 2,501,422 -------------------------------------------------------------------------- 2,297,900 North Attleborough, MA, 4.65% BANs, 4/19/1996 NR(3) 2,299,886 -------------------------------------------------------------------------- 5,300,000 Springfield, MA , 4.40% BANs (Fleet National Bank, Providence, R.I. LOC), 2/9/1996 P-1 5,308,469 -------------------------------------------------------------------------- 4,000,000 Springfield, MA , 4.50% BANs (Fleet National Bank, Providence, R.I. LOC), 2/9/1996 P-1 4,006,426 -------------------------------------------------------------------------- -------------- TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $ 145,229,041 -------------------------------------------------------------------------- --------------
* Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Denotes a restricted security which is subject to restrictions or resale under Federal Securities laws. These securities have been determined to be liquid under criteria established by the Board of Trustees at the end of the period, these securities amounted to $8,465,000 which represents 5.8% of net assets. (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($146,207,706) at October 31, 1995. The following acronyms are used throughout this portfolio: AMBAC--American Municipal Bond Assurance Corporation BANs--Bond Anticipation Notes CP--Commercial Paper GO--General Obligation HEFA--Health and Education Facilities Authority HFA--Housing Finance Authority IDA--Industrial Development Authority IFA--Industrial Finance Authority INS--Insured LIQ--Liquidity Agreement LOC--Letter of Credit LT--Limited Tax MBIA--Municipal Bond Investors Assurance PLC--Public Limited Company PRF--Prerefunded TOBs--Tender Option Bonds VRDNs--Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------------------------------ Total investments in securities, at amortized cost and value $ 145,229,041 - ------------------------------------------------------------------------------------------------------ Cash 181,475 - ------------------------------------------------------------------------------------------------------ Income receivable 1,052,777 - ------------------------------------------------------------------------------------------------------ Receivable for shares sold 958 - ------------------------------------------------------------------------------------------------------ Deferred expenses 1,248 - ------------------------------------------------------------------------------------------------------ -------------- Total assets 146,465,499 - ------------------------------------------------------------------------------------------------------ LIABILITIES: - ------------------------------------------------------------------------------------------ Income distribution payable $ 219,077 - ------------------------------------------------------------------------------------------ Accrued expenses 38,716 - ------------------------------------------------------------------------------------------ ---------- Total liabilities 257,793 - ------------------------------------------------------------------------------------------------------ -------------- NET ASSETS for 146,207,706 shares outstanding $ 146,207,706 - ------------------------------------------------------------------------------------------------------ -------------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------------------------------ INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------------------------------ ($99,627,788 / 99,627,788 shares outstanding) $1.00 - ------------------------------------------------------------------------------------------------------ -------------- BAYFUNDS SHARES: - ------------------------------------------------------------------------------------------------------ ($46,579,918 / 46,579,918 shares outstanding) $1.00 - ------------------------------------------------------------------------------------------------------ --------------
(See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - -------------------------------------------------------------------------------------------------------- Interest $ 5,286,218 - -------------------------------------------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------------------------------------------- Investment advisory fee $ 686,918 - -------------------------------------------------------------------------------------------- Administrative personnel and services fee 155,000 - -------------------------------------------------------------------------------------------- Custodian fees 36,851 - -------------------------------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 47,328 - -------------------------------------------------------------------------------------------- Sub-transfer agent fees--BayFunds Shares 20,832 - -------------------------------------------------------------------------------------------- Directors'/Trustees' fees 1,447 - -------------------------------------------------------------------------------------------- Auditing fees 14,671 - -------------------------------------------------------------------------------------------- Legal fees 2,692 - -------------------------------------------------------------------------------------------- Portfolio accounting fees 40,267 - -------------------------------------------------------------------------------------------- Shareholder services fee--Institutional Service Shares 232,505 - -------------------------------------------------------------------------------------------- Shareholder services fee--BayFunds Shares 110,936 - -------------------------------------------------------------------------------------------- Share registration costs 17,284 - -------------------------------------------------------------------------------------------- Printing and postage 16,615 - -------------------------------------------------------------------------------------------- Insurance premiums 5,740 - -------------------------------------------------------------------------------------------- Miscellaneous 9,888 - -------------------------------------------------------------------------------------------- ---------- Total expenses 1,398,974 - -------------------------------------------------------------------------------------------- Waivers-- - ------------------------------------------------------------------------------- Waiver of investment advisory fee $ (276,299) - ------------------------------------------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (232,505) - ------------------------------------------------------------------------------- Waiver of shareholder services fee--BayFunds Shares (110,936) - ------------------------------------------------------------------------------- ----------- Total waivers (619,740) - -------------------------------------------------------------------------------------------- ---------- Net expenses 779,234 - -------------------------------------------------------------------------------------------------------- ------------ Net investment income $ 4,506,984 - -------------------------------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1995 1994 INCREASE (DECREASE) IN NET ASSETS: - -------------------------------------------------------------------------------- OPERATIONS-- - -------------------------------------------------------------------------------- Net investment income $ 4,506,984 $ 2,717,161 - -------------------------------------------------------------------------------- ------------------ --------------- DISTRIBUTIONS TO SHAREHOLDERS-- - -------------------------------------------------------------------------------- Distributions from net investment income - -------------------------------------------------------------------------------- Institutional Service Shares (3,066,535) (2,037,982) - -------------------------------------------------------------------------------- BayFunds Shares (1,440,449) (679,179) - -------------------------------------------------------------------------------- ------------------ --------------- Change in net assets resulting from distributions to shareholders (4,506,984) (2,717,161) - -------------------------------------------------------------------------------- ------------------ --------------- SHARE TRANSACTIONS-- - -------------------------------------------------------------------------------- Proceeds from sale of shares 371,068,422 349,831,127 - -------------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,255,146 1,275,493 - -------------------------------------------------------------------------------- Cost of shares redeemed (359,040,754) (321,848,920) - -------------------------------------------------------------------------------- ------------------ --------------- Change in net assets resulting from share transactions 14,282,814 29,257,700 - -------------------------------------------------------------------------------- ------------------ --------------- Change in net assets 14,282,814 29,257,700 - -------------------------------------------------------------------------------- NET ASSETS: - -------------------------------------------------------------------------------- Beginning of period 131,924,892 102,667,192 - -------------------------------------------------------------------------------- ------------------ --------------- End of period $ 146,207,706 $ 131,924,892 - -------------------------------------------------------------------------------- ------------------ ---------------
(See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Massachusetts Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Fund offers two classes of shares: Institutional Service Shares and BayFund Shares. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 55.1% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or supported (backed) by a letter of credit for any one institution or agency does not exceed 10.3% of total investments. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1995 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST Clipper, MA, Tax Exempt Trust, Weekly VRDNs (State Street Bank and Trust Co. LIQ) 5/15/95 $ 5,000,000 Clipper, MA, Tax Exempt Trust, (Series 1993-1) Weekly VRDNs (State Street Bank and Trust Co. LIQ) 6/30/95 $ 3,465,000
OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1995, capital paid-in aggregated $146,207,706. MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, 1995 1994 INSTITUTIONAL SERVICE SHARES - ---------------------------------------------------------------------------------- Shares sold 337,436,671 298,784,520 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 814,368 594,441 - ---------------------------------------------------------------------------------- Shares redeemed (328,636,637) (293,889,923) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from Institutional Service share transactions 9,614,402 5,489,038 - ---------------------------------------------------------------------------------- -------------- --------------
YEAR ENDED OCTOBER 31, 1995 1994 BAYFUNDS SHARES - ---------------------------------------------------------------------------------- Shares sold 33,631,751 51,046,608 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,440,778 681,051 - ---------------------------------------------------------------------------------- Shares redeemed (30,404,117) (27,958,997) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from BayFunds share transactions 4,668,412 23,768,662 - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from share transactions 14,282,814 29,257,700 - ---------------------------------------------------------------------------------- -------------- --------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net assets for Institutional Service Shares for the period. Under the terms of a Shareholder Services Agreement with BayBank Systems, Inc., the Fund will pay BayBank Systems, Inc. up to .25 of 1% of average daily net assets for BayFunds Shares for the period. These fees are to obtain certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can modify or terminate this voluntarily waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses of $44,840 and start-up administrative service expenses of $43,014 were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organizational and start-up administrative expenses during the five year period following May 18, 1990 (the date the Fund became effective). For the period ended October 31, 1995, the Fund paid $3,869 and $4,291, respectively, pursuant to this agreement. During the period, the Fund completed its obligation for organizational and start-up administrative expenses pursuant to this agreement. INTERFUND TRANSACTIONS--During the period ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common officers. These transactions were made at current market value pursuant to rule 17a-7 under the Act amounting to $189,150,000 and $215,560,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Massachusetts Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Massachusetts Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights (see pages 3 and 21 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Massachusetts Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK - ------------------------------------------------------------------------------- ADDRESSES Massachusetts Municipal Cash Trust BayFunds Shares Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 DISTRIBUTOR Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 INVESTMENT ADVISER Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 TRANSFER AGENT AND DIVIDEND DISBURSING AGENT Federated Services Company P.O. Box 8600 Boston, Massachusetts 02266-8600 SUB-TRANSFER AGENT DST Systems, Inc. 210 West 10th Street Kansas City, Missouri 64105 SHAREHOLDER SERVICING AGENT BayBank Systems, Inc. One BayBank Technology Place Waltham, Massachusetts 02154 CUSTODIAN State Street Bank and Trust Company P.O. Box 1119 Boston, Massachusetts 02266 INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP 2100 One PPG Place MASSACHUSETTS MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) BAYFUNDS(R) SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus for BayFunds Shares of Massachusetts Municipal Cash Trust (the "Fund") dated December 31, 1995. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800- BAYFUND (1-800-229-3863). FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 Statement dated December 31, 1995 FEDERATED SECURITIES CORP. Distributor A subsidiary of FEDERATED INVESTORS INVESTMENT POLICIES 1 ACCEPTABLE INVESTMENTS 1 PARTICIPATION INTERESTS 1 MUNICIPAL LEASES 1 RATINGS 2 WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS 3 REPURCHASE AGREEMENTS 3 CREDIT ENHANCEMENT 4 INVESTMENT LIMITATIONS 4 REGULATORY COMPLIANCE 8 MASSACHUSETTS INVESTMENT RISKS 9 FEDERATED MUNICIPAL TRUST MANAGEMENT 10 FUND OWNERSHIP 19 TRUSTEES' COMPENSATION 20 TRUSTEE LIABILITY 22 INVESTMENT ADVISORY SERVICES 22 ADVISER TO THE FUND 22 ADVISORY FEES 22 BROKERAGE TRANSACTIONS 23 OTHER SERVICES 24 FUND ADMINISTRATION 24 CUSTODIAN 25 TRANSFER AGENT AND DIVIDEND DISBURSING AGENT 25 SUB-TRANSFER AGENT 25 INDEPENDENT PUBLIC ACCOUNTANTS 25 SHAREHOLDER SERVICING AGENT 26 EXCHANGING SECURITIES FOR SHARES 26 DETERMINING NET ASSET VALUE 27 REDEMPTION IN KIND 28 MASSACHUSETTS PARTNERSHIP LAW 28 THE FUND'S TAX STATUS 29 MASSACHUSETTS STATE INCOME TAX 29 PERFORMANCE INFORMATION 30 YIELD 31 EFFECTIVE YIELD 31 TOTAL RETURN 31 PERFORMANCE COMPARISONS 32 ABOUT FEDERATED INVESTORS 33 APPENDIX 33 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security, the issuer of any demand feature applicable to the security, or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing participation interests having a seven day demand feature, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of non-appropriation"); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Ratings Group ("S&P"), or MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1 and FIN-2 by Fitch Investor Services, Inc. are all considered rated in one of the two highest short-term rating categories. The Fund will follow applicable regulations in determining whether a security rated by more than one NRSRO can be treated as being in one of the two highest short-term rating categories; currently, such securities must be rated by two NRSROs in one of their two highest categories. See "Regulatory Compliance." WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price and yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund 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 has been settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. The Fund or its custodian will take possession of the securities subject to repurchase agreements and these securities will be marked to market daily. To the extent that the original seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. In the event that such a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy, pursuant to guidelines established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit-enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the "credit enhancer"), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as are necessary for the clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of the pledge. DIVERSIFICATION OF INVESTMENTS With regard to at least 50% of its total assets, no more than 5% of its total assets are to be invested in the securities of a single issuer, and no more than 25% of its total assets are to be invested in the securities of a single issuer at the close of each quarter of each fiscal year. Under this limitation, each governmental subdivision, including states, territories, possessions of the United States or their political subdivisions, agencies, authorities, instrumentalities, or similar entities will be considered a separate issuer if its assets and revenues are separate from those of the governmental body creating it and the security is backed only by its own assets and revenues. Industrial development bonds backed only by the assets and revenues of a nongovernmental issuer are considered to be issued solely by that issuer. If, in the case of an industrial development bond or government-issued security, a governmental or other entity guarantees the security, such guarantee would be considered a separate security issued by the guarantor, as well as the other issuer, subject to limited exclusions allowed by the Investment Company Act of 1940. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate or real estate limited partnerships, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. LENDING CASH OR SECURITIES The Fund will not lend any of its assets except that it may acquire publicly or nonpublicly issued Massachusetts municipal securities or temporary investments or enter into repurchase agreements in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its total assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above investment limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies except as part of a merger, consolidation, reorganization, or other acquisition. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in industrial development bonds or other municipal securities where the principal and interest are the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF THE TRUST The Fund will not purchase or retain the securities of any issuer if the officers and Trustees of the Trust or the Fund's investment adviser, owning individually more than 1/2 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. DEALING IN PUTS AND CALLS The Fund will not purchase or sell puts, calls, straddles, spreads, or any combination of them, except that the Fund may purchase municipal securities accompanied by agreements of sellers to repurchase them at the Fund's option. INVESTING IN MINERALS The Fund will not purchase or sell oil, gas, or other mineral exploration or development programs or leases. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in securities which are illiquid, including repurchase agreements providing for settlement in more than seven days after notice, certain restricted securities not determined by the Trustees to be liquid, and non-negotiable fixed time deposits with maturities over seven days. Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such restriction. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. For purposes of its policies and limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments, as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. MASSACHUSETTS INVESTMENT RISKS The Fund invests in obligations of Massachusetts issuers which results in the Fund's performance being subject to risks associated with the overall economic conditions present within Massachusetts (the "Commonwealth"). The following information is a brief summary of the recent prevailing economic conditions and a general summary of the Commonwealth's financial status. This information is based on official statements relating to securities that have been offered by Massachusetts issuers and from other sources believed to be reliable but should not be relied upon as a complete description of all relevant information. The Commonwealth has a diverse economy with manufacturing, education, health care, computers and financial services all being significant contributors. Massachusetts is generally considered the leader in research and development within the biotechnology, software and robotics industries as well as having many highly prestigious universities. In addition to a highly skilled and educated workforce, the Commonwealth has one of the higher average per capita incomes in this country. Beginning in the late 1980's, economic growth in the New England region and Massachusetts, in particular, slowed and showed pronounced deterioration in the construction, real estate, financial and manufacturing sectors. Between 1988 and 1992 there were massive job losses that resulted in a 10% reduction in the work force. Also, over the same period, property values in the region experienced a similar decline. More recently the Massachusetts economy has experienced a slight recovery, however at a slower pace than the nation and there are signs that this recovery may be slowing. The two major revenue sources available to cities and towns in Massachusetts are local property taxes and local aid from the Commonwealth. Property taxes are subject to limitations imposed by a state-wide initiative approved by the voters in November, 1980 (commonly known as Proposition 2-1/2), which limits the property taxes that may be levied by any city or town in any fiscal year to the lesser of (i) 2.5% of the full valuation of the real estate and personal property therein or (ii) 2.5% over the previous year's levy limit plus any growth in the tax base from new construction. In recent years the decrease in property values due to the recession and the limitations of tax levy growth imposed by Prop 2-1/2 have resulted in budget constraints for many cities and towns. The overall financial condition of the Commonwealth can also be illustrated by the changes of its debt ratings. During the period in which the Commonwealth has experienced its financial difficulties beginning in 1988, its general obligation long-term debt ratings as determined by Moody's and S&P decreased from Aa and AA+, respectively, to a low of Baa and BBB. Since then the Commonwealth has had its debt ratings raised by the two rating agencies to A1 and A+ (Moody's and S&P) reflecting its improved fiscal performance. The Fund's concentration in securities issued by the Commonwealth and its political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. The ability of the Commonwealth or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the Commonwealth; and the underlying fiscal condition of the Commonwealth and its municipalities. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President of the Trust . Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds; formerly, Senior Partner, Ernst & Young LLP. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; President, Northgate Village Development Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Director, Trustee, or Managing General Partner of the Funds; formerly, President, Naples Property Management, Inc. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee, or Managing General Partner of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine and Member, Board of Trustees, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director, Trustee, or Managing General Partner of the Funds. Edward L. Flaherty, Jr.@ Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director, Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson * Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. and Federated Administrative Services. Peter E. Madden Seacliff 562 Bellevue Avenue Newport, RI Birthdate: March 16, 1942 Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, Trustee, or Managing General Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation. Gregor F. Meyer Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General Partner of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director, Trustee or Managing General Partner of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics and Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; founding Chairman, National Advisory Council for Environmental Policy and Technology and Federal Emergency Management Advisory Board. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/marketing consultant; Conference Coordinator, Non-profit entities; Director, Trustee, or Managing General Partner of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative Services, Federated Services Company, and Federated Shareholder Services; 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. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President and Secretary Executive Vice President, Secretary, General Counsel, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. David M. Taylor Federated Investors Tower Pittsburgh, PA Birthdate: January 13, 1947 Treasurer Senior Vice President, Controller, and Trustee, Federated Investors; Controller, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., and Passport Research, Ltd.; Senior Vice President, Federated Shareholder Services; Vice President, Federated Administrative Services; Treasurer of some of the Funds. * This Trustee is deemed to be an "interested person" as defined in the Investment Company Act of 1940. @ Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. As used in the table above, "The Funds" and "Funds" mean the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5 Years; 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; 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 U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut 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; The Virtus Funds; World Investment Series, Inc. FUND OWNERSHIP The Officers and Trustees, as a group, do not own more than 1% of the outstanding shares of the Fund. As of December 4, 1995, the following shareholders of record owned 5% or more of the outstanding BayFunds Shares of the Fund: John & Co., Burlington, Massachusetts owned approximately 48,086,126 shares (100%). As of December 4, 1995, the following shareholders of record owned 5% or more of the outstanding Institutional Service Shares of the Fund: State Street Bank, North Qunicy, Massachusetts (as record owner holding Institutional Services Shares for its clients) owned approximately 16,017,267 (16.02%) shares, John & Co., Burlington, Massachusetts owned approximately 19,517,013 (19.52%) shares, and State Street Bank, North Qunicy, Massachusetts (as record owner holding Institutional Services Shares for its clients) owned approximately 17,899,340 (17.90%) shares. TRUSTEES' COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue, $ -0- $ -0- for the Trust and Chairman and Trustee 68 other investment companies in the Fund Complex Thomas G. Bigley,$2,458 $20,688 for the Trust and Trustee 49 other investment companies in the Fund Complex John T. Conroy, Jr., $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex William J. Copeland, $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex James E. Dowd, $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Lawrence D. Ellis, M.D., $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Edward L. Flaherty, Jr., $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Glen R. Johnson, $ -0- $0 for the Trust and President and Trustee 8 other investment companies in the Fund Complex Peter E. Madden, $2,757 $90,563 for Trust and Trustee 64 other investment companies in the Fund Complex Gregor F. Meyer, $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex John E. Murray, Jr., $1,762 $0 for the Trust and Trustee 68 other investment companies in the Fund Complex Wesley W. Posvar,$3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Marjorie P. Smuts, $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1995. #The aggregate compensation is provided for the Trust which is comprised of 15 portfolios. +The information is provided for the last calendar year. TRUSTEE LIABILITY The Trust's Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES ADVISER TO THE FUND The Fund's investment adviser is Federated Management (the "Adviser"). It is a subsidiary of Federated Investors. All of the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife, and his son, J. Christopher Donahue. The Adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security, or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, the Adviser receives an annual investment advisory fee as described in the prospectus. During the fiscal years ended October 31, 1995, 1994, and 1993, the Adviser earned $686,918, $643,293, and $498,975, respectively, of which $276,299, $445,711, and $427,232, respectively, were voluntarily waived because of undertakings to limit the Fund's expenses. STATE EXPENSE LIMITATIONS The Adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the Adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this expense limitation, the investment advisory fee paid will be reduced by the amount of the excess, subject to an annual adjustment. If the expense limitation is exceeded, the amount to be reimbursed by the Adviser will be limited by the amount of the investment advisory fee. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Board of Trustees. The Adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the Adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the Adviser or its affiliates in advising the Trust and other accounts. To the extent that receipt of these services may supplant services for which the Adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The Adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal year ended October 31, 1995, the Trust paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the Adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the Adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the Adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc., also a subsidiary of Federated Investors, served as the Fund's administrator. For purposes of this Statement of Additional Information, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the "Administrators." For the fiscal year ended October 31, 1995, 1994, and 1993, the Administrators earned $155,000, $195,483, and $253,380, respectively. Dr. Henry J. Gailliot, an officer of Federated Management, the Adviser to the Fund, holds approximately 20% of the outstanding common stock and serves as director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services, Inc. 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, a subsidiary of Federated Investors, serves as transfer agent and dividend disbursing agent for the Fund. The fee paid to the transfer agent is based upon the size, type and number of accounts and transactions made by shareholders. Federated Services Company also maintains the Trust's accounting records. The fee paid for this service is based upon the level of the Fund's average net assets for the period plus out-of-pocket expenses. SUB-TRANSFER AGENT DST Systems, Inc., Kansas City, Missouri, is the sub-transfer agent for the Shares of the Fund. The Institutional Service Shares class has no sub-transfer agent. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, Pennsylvania. SHAREHOLDER SERVICING AGENT Under a Shareholder Servicing Plan, the Fund may pay a fee to BayBank Systems, Inc., as shareholder servicing agent, for services provided which are necessary for the maintenance of shareholder accounts. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balance; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. For the fiscal years ended October 31, 1995 and 1994, payments in the amount of $110,936 and $19,343, respectively, were made to the shareholder servicing agent. EXCHANGING SECURITIES FOR SHARES The Fund may accept securities in exchange for Shares. The Fund will allow such exchanges only upon the prior approval of the Fund and a determination by the Fund and the Adviser that the securities to be exchanged are acceptable. Any securities exchanged must meet the investment objective and policies of the Fund, must have a readily ascertainable market value and must be liquid. The Fund acquires the exchanged securities for investment and not for resale. The market value of any securities exchanged in an initial investment plus any cash, must be at least $25,000. Securities accepted by the Fund will be valued in the same manner as the Fund values its assets. The basis of the exchange will depend upon the net asset value of Shares on the day the securities are valued. One Share of the Fund will be issued for each equivalent amount of securities accepted. Any interest earned on the securities prior to the exchange will be considered in valuing the securities. All interest, dividends, subscription or other rights attached to the securities become the property of the Fund, along with the securities. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MONTHLY STATEMENTS Shareholders of the Fund who have eligible BayBanks deposit accounts will receive combined monthly statements containing all information relating to their deposit account(s) and BayFunds transactions. COMPANION ACCOUNT AVAILABILITY Certain BayBanks deposit account customers may elect to open a companion BayFunds account to facilitate BayFunds transactions. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable under Massachusetts law for obligations of the Trust. To protect shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument that the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. MASSACHUSETTS STATE INCOME TAX Individual shareholders of the Fund who are subject to Massachusetts income taxation will not be required to pay Massachusetts income tax on that portion of their dividends which are attributable to: interest earned on Massachusetts tax- free municipal obligations; gain from the sale of certain of such obligations; and interest earned on obligations of United States territories or possessions, to the extent interest on such obligations is exempt from taxation by the state pursuant to federal law. All remaining dividends will be subject to Massachusetts income tax. If a shareholder of the Fund is a Massachusetts business corporation or any foreign business corporation which exercises its charter, qualifies to do business, actually does business or owns or uses any part of its capital, plant or other property in Massachusetts, then it will be subject to Massachusetts excise taxation either as a tangible property corporation or as an intangible property corporation. If the corporate shareholder is a tangible property corporation, it will be taxed upon its net income allocated to Massachusetts and the value of certain tangible property. If it is an intangible property corporation, it will be taxed upon its net income and net worth allocated to Massachusetts. Net income is gross income less allowable deductions for federal income tax purposes, subject to specified modifications. Dividends received from the Fund are includable in gross income and generally may not be deducted by a corporate shareholder in computing its net income. The corporation's shares in the Fund are not includable in the computation of the tangible property base of a tangible property corporation, but are includable in the computation of the net worth base of an intangible property corporation. Shares of Massachusetts Municipal Cash Trust will be exempt from local property taxes in Massachusetts. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The Fund calculates its yield based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. The yield for the seven-day period ended October 31, 1995 for the BayFunds Shares of the Fund was 3.32%. EFFECTIVE YIELD The Fund calculates its effective yield by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. The effective yield for the seven-day period ended October 31, 1995 for the BayFunds Shares of the Fund was 3.37%. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. For the one-year period ended October 31, 1995, and for the period from March 8, 1993 (date of initial public investment) to October 31, 1995, the average annual total returns were 3.30% and 2.46%, respectively, for the BayFunds Shares of the Fund. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: O LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. o MONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. From time to time as it deems appropriate, the Fund may advertise the performance of its shares using charts, graphs and description, compared to federally insured bank products, including certificates of deposit and time deposits, and to money market funds using the Lipper Analytical Services money market instruments average. Unlike federally insured bank products, the shares of the Fund are not insured. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making - structured, straightforward, and consistent. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. In the municipal sector, as of December 31, 1994, Federated Investors managed 18 bond funds with approximately $1.9 billion in assets and 18 money market funds with approximately $6.6 billion in total assets. In 1976, Federated Investors introduces one of the first municipal bond mutual funds in the industry and is now one of the largest institutional buyers of municipal securities. William D. Dawson, Executive Vice President, oversees Federated Investor's domestic fixed income management. APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity concerns and market access risks unique to notes. SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus sign (+) designation. SP-2 Satisfactory capacity to pay principal and interest. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a variable rate demand feature. The first rating (long-term rating) addresses the likelihood of repayment of principal and interest when due, and the second rating (short-term rating) describes the demand characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long- term and the short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. LONG-TERM DEBT RATINGS AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rate "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATINGS Moody's Investor Service, Inc. (Moody's) short-term ratings are designated Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG ratings is to provide investors with a simple system by which the relative investment qualities of short-term obligations may be evaluated. MIG1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad based access to the market for refinancing. MIG2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. In this case, two ratings are usually assigned, (for example, AAA/VMIG-1); the first representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the second representing an evaluation of the degree of risk associated with the demand feature. The VMIG rating can be assigned a 1 or 2 designation using the same definitions described above for the MIG rating. COMMERCIAL PAPER (CP) RATINGS P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well established industries, high rates of return on funds employed, conservative capitalization structure with moderate reliance on debt and ample asset protection, broad margins in earning coverage of fixed financial charges and high internal cash generation, well-established access to a range of financial markets and assured sources of alternate liquidity P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. LONG-TERM DEBT RATINGS AAA Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes is can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in AAA securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. NR Indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P or Moody's with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated A-1 or P-1. NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated "AAA" by S&P or "AAA" by Moody's. NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated "AA" by S&P or "AA" by Moody's. NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated "A" by S&P or Moody's. Cusip 314229832 - -------------------------------------------------------------------------------- MICHIGAN MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) PROSPECTUS The shares of Michigan Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Michigan municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Michigan, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and and the personal income tax imposed by the State of Michigan consistent with stability of principal and liquidity. In addition, the Fund intends to qualify as an investment substantially exempt from the Michigan intangibles tax. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - -------------------------------------------------- FINANCIAL HIGHLIGHTS 2 - -------------------------------------------------- GENERAL INFORMATION 3 - -------------------------------------------------- INVESTMENT INFORMATION 3 - -------------------------------------------------- Investment Objective 3 Investment Policies 3 Michigan Municipal Securities 6 Investment Risks 6 Non-Diversification 7 Investment Limitations 7 FUND INFORMATION 7 - -------------------------------------------------- Management of the Fund 7 Distribution of Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - -------------------------------------------------- HOW TO PURCHASE SHARES 9 - -------------------------------------------------- Special Purchase Features 10 HOW TO REDEEM SHARES 10 - -------------------------------------------------- Special Redemption Features 12 ACCOUNT AND SHARE INFORMATION 12 - -------------------------------------------------- TAX INFORMATION 13 - -------------------------------------------------- Federal Income Tax 13 State and Local Taxes 13 PERFORMANCE INFORMATION 14 - -------------------------------------------------- FINANCIAL STATEMENTS 15 - -------------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 26 - -------------------------------------------------- ADDRESSES 27 - --------------------------------------------------
I SUMMARY OF FUND EXPENSES - --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................... None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)....................................................................... None Redemption Fee (as a percentage of amount redeemed, if applicable)............................... None Exchange Fee..................................................................................... None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)................................................................ 0.00% 12b-1 Fee........................................................................................ None Total Other Expenses (after expense reimbursement)............................................... 0.50% Shareholder Services Fee............................................................ 0.25% Total Fund Operating Expenses (2)........................................................ 0.50%
(1) The management fee has been reduced to reflect the voluntary waiver of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The total operating expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1996. The total operating expenses were 0.32% for the fiscal year ended October 31, 1995 and would have been 1.95% absent the voluntary waiver of the management fee and the voluntary reimbursement of certain other operating expenses. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ----------------------------------------------------------------- --------- --------- --------- --------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period................................................. $5 $16 $28 $63
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 1 MICHIGAN MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of Independent Public Accountants on page 26.
PERIOD ENDED OCTOBER 31, 1995(a) - ------------------------------------------------------------------ ------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 - ------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------------------ Net investment income 0.01 - ------------------------------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------------------------------ Distributions from net investment income (0.01) - ------------------------------------------------------------------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 - ------------------------------------------------------------------ ------ ------ TOTAL RETURN (b) 1.35% - ------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------ Expenses 0.32%* - ------------------------------------------------------------------ Net investment income 3.67%* - ------------------------------------------------------------------ Expense waiver/reimbursement (c) 1.63%* - ------------------------------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------------------------------ Net assets, end of period (000 omitted) $30,133 - ------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from June 20, 1995 (date of initial public investment) to October 31, 1995. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) 2 GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The Fund is designed for financial institutions acting in an agency or fiduciary capacity as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term Michigan municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Michigan taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income tax imposed by the State of Michigan consistent with stability of principal and liquidity. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. In addition, the Fund intends to qualify as an investment substantially exempt from the Michigan Intangibles Personal Property Tax ("intangibles tax"). INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Michigan municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Michigan state income and intangibles tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Michigan and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Michigan personal income tax 3 ("Michigan Municipal Securities"). Examples of Michigan 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 debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Michigan Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Michigan Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party 4 providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the 5 organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Michigan Municipal Securities is subject to the federal alternative minimum tax. MICHIGAN MUNICIPAL SECURITIES Michigan Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Michigan Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Michigan Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Michigan Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Michigan Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Michigan Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Michigan Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Michigan Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Michigan Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of 6 any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, 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 assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is 7 a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of Fund shares, computed at an annual rate, to obtain certain personal services for shareholders and provide maintenance of shareholder accounts ("shareholder services"). From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. 8 SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor may pay financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide certain services to shareholders. These services may include, but are not limited to, distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of shares. Any fees paid for these services by the distributor will be reimbursed by the adviser and not the Fund. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS -------------------- ------------------------------------ .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of its shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting total liabilities from total assets and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more within a 90-day period and additional investments of as little as $500. Financial institutions may impose different minimum investment requirements on their customers. 9 In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Michigan Municipal Cash Trust; Fund Number (This number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to Michigan Municipal Cash Trust. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests 10 and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If shares certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. 11 SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio, only shares of that portfolio are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. 12 Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 4, 1995, McDonald & Co. Securities Inc., Cincinnati, OH, owned 45.69% of the voting securities of the Fund, and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Michigan. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. MICHIGAN TAX CONSIDERATIONS. Under existing Michigan laws, distributions made by the Fund will not be subject to Michigan personal income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest from obligations of Michigan or any of its political subdivisions, or (ii) income from obligations of the United States government which are exempted from state income taxation by a law of the United States. 13 The portion of a shareholder's shares in the Fund representing (i) bonds or other similar obligations of Michigan or its political subdivisions, or (ii) obligations of the United States which are exempt from taxation by a law of the United States, and dividends paid by the Fund representing interest payments on securities, will be exempt from Michigan intangibles tax. Distributions by the Fund are not subject to the Michigan Single Business Tax to the extent that such distributions are derived from interest on obligations of Michigan or its political subdivisions, or obligations of the United States government that are exempt from state taxation by a law of the United States. Certain municipalities in Michigan also impose an income tax on individuals and corporations. However, to the extent that the dividends from the Funds are exempt from federal regular income taxes, such dividends also will be exempt from Michigan municipal income taxes. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. 14 MICHIGAN MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - -------------- ------------------------------------------------------------ ------- ----------- SHORT-TERM MUNICIPAL SECURITIES--111.3% - ------------------------------------------------------------------------------- MICHIGAN--108.0% ------------------------------------------------------------ $1,000,000 Auburn Hills, MI EDC, Limited Obligation Multi-Option Revenue Bonds (Series 1995) Weekly VRDNs (Suburban Tool, Inc. Project)/(Huntington National Bank, Columbus, OH LOC) A-1 $ 1,000,000 ------------------------------------------------------------ 1,100,000 Bedford Township, MI Economic Development Corp., EDRB (Series 1985) Weekly VRDNs (Form-Tech Steel Inc. Project)/(Society National Bank, Cleveland, OH LOC) P-1 1,100,000 ------------------------------------------------------------ 1,000,000 Bruce Township, MI Hospital Finance Authority, Adjustable Rate Tender Securities (ARTS) Weekly VRDNs (Sisters of Charity Health Care System)/(MBIA Insurance Corporation INS)/(Morgan Guaranty Trust Co., New York LIQ) VMIG1 1,000,000 ------------------------------------------------------------ 1,400,000 Bruce Township, MI Hospital Finance Authority, Adjustable Rate Tender Securities (ARTS) (Series 1988B), 3.70% TOBs (Sisters of Charity Health Care System)/(MBIA Insurance Corporation INS)/(Morgan Guaranty Trust Co., New York LIQ), Optional Tender 5/1/1996 VMIG1 1,400,000 ------------------------------------------------------------ 1,000,000 Clinton Twp, MI EDA, Adjustable Rate Tender Securities (ARTS) Weekly VRDNs (Sisters of Charity Health Care System)/(MBIA Insurance Corporation INS)/(Morgan Guaranty Trust Co., New York LIQ) VMIG1 1,000,000 ------------------------------------------------------------ 1,000,000 Cornell, MI Economic Development Corp., Industrial Development Revenue Refunding Bonds (Series 1990), 3.75% CP (Mead-Escanaba Paper Co. Project)/(Credit Suisse, Zurich LOC), Mandatory Tender 1/9/1996 A-1+ 1,000,000 ------------------------------------------------------------ 850,000 Dearborn, MI Economic Development Corp, (Series 1990) Weekly VRDNs (Exhibit Productions, Inc. Project)/(Bank of America--Illinois LOC) P-1 850,000 ------------------------------------------------------------
15 MICHIGAN MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - -------------- ------------------------------------------------------------ ------- ----------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------- MICHIGAN--CONTINUED ------------------------------------------------------------ $1,150,000 Dearborn, MI Economic Development Corp, (Series 1991) Weekly VRDNs (Oakbrook Common Project)/(Mellon Bank NA, Pittsburgh LOC) A-1 $ 1,150,000 ------------------------------------------------------------ 1,000,000 Delta County, MI Economy Development Corp., Environmental Improvement Revenue Refunding Bonds (Series 1985 B), 3.70% CP (Mead-Escanaba Paper Co. Project)/(Union Bank of Switzerland, Zurich LOC), Mandatory Tender 1/11/1996 P-1 1,000,000 ------------------------------------------------------------ 800,000 Detroit, MI Water Supply System, Water Supply System Revenue and Revenue Refunding Bonds (Series 1993) Weekly VRDNs (FGIC INS)/(FGIC Securities Purchase, Inc. LIQ) VMIG1 800,000 ------------------------------------------------------------ 2,100,000 Michigan Job Development Authority, Variable Rate Demand Limited Obligation Revenue Bonds Weekly VRDNs (Andersons Project)/(Credit Lyonnais, Paris LOC) P-2 2,100,000 ------------------------------------------------------------ 1,000,000 Michigan Municipal Bond Authority, 4.50% RANs, 7/3/1996 SP-1+ 1,004,849 ------------------------------------------------------------ 1,000,000 Michigan Municipal Bond Authority, Revenue Notes, Series 1995C, 4.50% RANs, 9/6/1996 SP-1+ 1,004,476 ------------------------------------------------------------ 310,000 Michigan State Hospital Finance Authority, (Series 1994) Weekly VRDNs (Mt. Clemens General Hospital)/(Comerica Bank, Detroit, MI LOC) VMIG1 310,000 ------------------------------------------------------------ 1,600,000 Michigan State Hospital Finance Authority, (Series A) Weekly VRDNs (OSF Health Care Systems) P-1 1,600,000 ------------------------------------------------------------ 1,105,000 (b) Michigan State Hospital Finance Authority, Hospital Revenue Refunding Bonds (Series 1995), 4.00% (Port Huron Hospital Obligated Group)/(FSA INS), 7/1/1996 NR(1) 1,107,331 ------------------------------------------------------------ 1,400,000 Michigan State Housing Development Authority, Rental Housing Revenue Bonds (1994 Series C) Weekly VRDNs (Credit Suisse, Zurich LOC) A-1+ 1,400,000 ------------------------------------------------------------
16 MICHIGAN MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - -------------- ------------------------------------------------------------ ------- ----------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------- MICHIGAN--CONTINUED ------------------------------------------------------------ $1,000,000 Michigan State Housing Development Authority, Revenue Bonds (Series A), 3.75% CP (Sanwa Bank Ltd, Osaka LOC), Mandatory Tender 2/8/1996 VMIG1 $ 1,000,000 ------------------------------------------------------------ 1,500,000 Michigan State Trunk Line, Refunding Bonds (Series B), 4.00% (FGIC INS), 11/15/1996 NR(1) 1,503,735 ------------------------------------------------------------ 620,000 Michigan State, Strategic Fund (Series 1991) Weekly VRDNs (AGA Gas, Inc.)/(Svenska Handelsbanken, Inc. LOC) P-1 620,000 ------------------------------------------------------------ 1,000,000 Michigan State, Strategic Fund Weekly VRDNs (Tesco Engineering)/(Bank of Tokyo Ltd., Tokyo LOC) VMIG1 1,000,000 ------------------------------------------------------------ 530,000 Michigan Strategic Fund, (Series 1995) Weekly VRDNs (Rood Industries, Inc. Project)/(NBD Bank, N.A., Detroit, MI LOC) A-1+ 530,000 ------------------------------------------------------------ 1,200,000 Michigan Strategic Fund, Adjustable Rate Demand Refunding Revenue Bond, Series 1995CC Daily VRDNs (Detroit Edison Co.)/(Barclays Bank PLC, London LOC) A-1+ 1,200,000 ------------------------------------------------------------ 1,200,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1991) Weekly VRDNs (Martin Luther Memorial Home, Inc.)/(National Australia Bank, Ltd., Melbourne LOC) A-1 1,200,000 ------------------------------------------------------------ 370,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1995) Weekly VRDNs (United Waste Systems, Inc.)/(Bank of America Illinois LOC) A-1 370,000 ------------------------------------------------------------ 600,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (series 1995) Weekly VRDNs (RSR Project)/(Old Kent Bank & Trust Co., Grand Rapids LOC) A-1 600,000 ------------------------------------------------------------ 1,000,000 Michigan Strategic Fund, Obligation Revenue Bonds (Series 1995) Weekly VRDNs (Rowe Thomas Company Project)/(Comerica Bank, Detroit, MI LOC) P-1 1,000,000 ------------------------------------------------------------ 480,000 Michigan Strategic Fund, Obligation Revenue Bonds (Series 1995) Weekly VRDNs (Wayne Disposal-Oakland, Inc. Project)/(Comerica Bank, Detroit, MI LOC) A-1 480,000 ------------------------------------------------------------
17 MICHIGAN MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - -------------- ------------------------------------------------------------ ------- ----------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------- MICHIGAN--CONTINUED ------------------------------------------------------------ $ 500,000 Michigan Strategic Fund, Variable Rate Demand Limited Obligation Revenue Bonds (Series 1995) Weekly VRDNs (Bear Lake Associates Project)/(Old Kent Bank & Trust Co., Grand Rapids LOC) P-1 $ 500,000 ------------------------------------------------------------ 1,200,000 Michigan Underground Storage Tank Financial Assurance Authority, (Series I - 1995) Weekly VRDNs (Canadian Imperial Bank of Commerce, Toronto LOC) VMIG1 1,200,000 ------------------------------------------------------------ 1,000,000 Ottawa County, MI Economic Development Corp., Limited Obligation Revenue Bonds (Series 1995B) Weekly VRDNs (Sunset Manor, Inc. Project)/(Old Kent Bank & Trust Co., Grand Rapids LOC) A-1 1,000,000 ------------------------------------------------------------ 1,500,000 Sterling Heights, MI Economy Development Corp., Adjustable Rate Demand Limited Obligation Revenue Refunding Bonds Weekly VRDNs (Sterling Shopping Center Associates Project)/(NBD Bank, N.A., Detroit, MI LOC) A-1+ 1,500,000 ------------------------------------------------------------ ----------- Total 32,530,391 ------------------------------------------------------------ ----------- PUERTO RICO--3.3% ------------------------------------------------------------ 1,000,000 Puerto Rico Government Development Bank, 3.70% CP, Mandatory Tender 1/12/1996 A-1+ 1,000,000 ------------------------------------------------------------ ----------- TOTAL INVESTMENTS (AT AMORTIZED COST)(a) $33,530,391 ------------------------------------------------------------ ----------- -----------
Securities that are subject to Alternative Minimum Tax represent 24.0% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Also represents cost for federal tax purposes. (b) Denotes when-issued security. Note: The categories of investments are shown as a percentage of net assets ($30,133,273) at October 31, 1995. 18 MICHIGAN MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronyms are used throughout this portfolio: CP --Commercial Paper EDA --Economic Development Authority EDC --Economic Development Commission EDRB --Economic Development Revenue Bonds FGIC --Financial Guaranty Insurance Company FSA --Financial Security Assurance INS --Insured LIQ --Liquidity Agreement LOC --Letter of Credit MBIA --Municipal Bond Investors Assurance PLC --Public Limited Company RANs --Revenue Anticipation Notes TOBs --Tender Option Bonds VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) 19 MICHIGAN MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - ---------------------------------------------------------------------- Total investments in securities, at amortized cost and value $33,530,391 - ---------------------------------------------------------------------- Cash 390,655 - ---------------------------------------------------------------------- Income receivable 172,007 - ---------------------------------------------------------------------- Receivable for shares sold 128,354 - ---------------------------------------------------------------------- Deferred expenses 8,045 - ---------------------------------------------------------------------- ----------- Total assets 34,229,452 - ---------------------------------------------------------------------- LIABILITIES: - ---------------------------------------------------------------------- Payable for investments purchased $4,042,750 - ---------------------------------------------------------- Income distribution payable 21,733 - ---------------------------------------------------------- Accrued expenses 31,696 - ---------------------------------------------------------- ---------- Total liabilities 4,096,179 - ---------------------------------------------------------------------- ----------- Net Assets for 30,133,273 shares outstanding $30,133,273 - ---------------------------------------------------------------------- ----------- ----------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ---------------------------------------------------------------------- $30,133,273 DIVIDED BY 30,133,273 shares outstanding $ 1.00 - ---------------------------------------------------------------------- ----------- -----------
(See Notes which are an integral part of the Financial Statements) 20 MICHIGAN MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS PERIOD ENDED OCTOBER 31, 1995 (a) - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ------------------------------------------------------------------ Interest $255,885 - ------------------------------------------------------------------ EXPENSES: - ------------------------------------------------------- Investment advisory fee $ 32,107 - ------------------------------------------------------- Administrative personnel and services fee 45,548 - ------------------------------------------------------- Custodian fees 11,250 - ------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 4,044 - ------------------------------------------------------- Legal fees 109 - ------------------------------------------------------- Portfolio accounting fees 13,801 - ------------------------------------------------------- Shareholder services fee 16,054 - ------------------------------------------------------- Share registration costs 575 - ------------------------------------------------------- Printing and postage 800 - ------------------------------------------------------- Insurance premiums 706 - ------------------------------------------------------- Miscellaneous 398 - ------------------------------------------------------- --------- Total expenses 125,392 - ------------------------------------------------------- Waivers and reimbursements-- - --------------------------------------------- Waiver of investment advisory fee $(32,107) - --------------------------------------------- Reimbursement of other operating expenses (73,000) - --------------------------------------------- -------- Total waivers and reimbursements (105,107) - ------------------------------------------------------- --------- Net expenses 20,285 - ------------------------------------------------------------------ -------- Net investment income $235,600 - ------------------------------------------------------------------ -------- --------
(a) For the period from June 20, 1995 (date of initial public investment) to October 31, 1995. (See Notes which are an integral part of the Financial Statements) 21 MICHIGAN MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
PERIOD ENDED OCTOBER 31, 1995(a) -------------------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------------ OPERATIONS-- - ------------------------------------------------------------ Net investment income $ 235,600 - ------------------------------------------------------------ -------------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ------------------------------------------------------------ Distributions from net investment income (235,600) - ------------------------------------------------------------ -------------------- SHARE TRANSACTIONS-- - ------------------------------------------------------------ Proceeds from sale of shares 41,468,554 - ------------------------------------------------------------ Net asset value of shares issued to shareholders in payment of distributions declared 229,562 - ------------------------------------------------------------ Cost of shares redeemed (11,564,843) - ------------------------------------------------------------ -------------------- Change in net assets resulting from share transactions 30,133,273 - ------------------------------------------------------------ -------------------- Change in net assets 30,133,273 - ------------------------------------------------------------ -------------------- NET ASSETS: - ------------------------------------------------------------ Beginning of period -- - ------------------------------------------------------------ -------------------- End of period $ 30,133,273 - ------------------------------------------------------------ -------------------- --------------------
(a) For the period from June 20, 1995 (date of initial public investment) to October 31, 1995. (See Notes which are an integral part of the Financial Statements) 22 MICHIGAN MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Michigan Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK--Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 86.3% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or supported (backed) by a letter of credit for any one institution or agency does not exceed 10.1% of total investments. 23 MICHIGAN MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). At October 31, 1995, capital paid-in aggregated $30,133,273. Transactions in shares were as follows:
PERIOD ENDED OCTOBER 31, 1995(a) - --------------------------------------------------------------- -------------- Shares sold 41,468,554 - --------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 229,562 - --------------------------------------------------------------- Shares redeemed (11,564,843) - --------------------------------------------------------------- -------------- Net change resulting from share transactions 30,133,273 - --------------------------------------------------------------- -------------- --------------
(a) For the period from June 20, 1995 (date of initial public investment) to October 31, 1995. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services, the Fund will pay Federated Shareholder Services up to .25 of 1% of average 24 MICHIGAN MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- daily net assets of the Fund for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses of $18,618 were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organizational expenses during the five year period following effective date. For the period end October 31, 1995, the Fund paid $414 pursuant to the agreement. INTERFUND TRANSACTIONS--During the period ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/Trustees, and/or common officers. These transactions were made at current market value pursuant to rule 17a-7 under the Act amounting to $36,054,465 and $14,340,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 25 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Michigan Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Michigan Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations and changes in net assets, and the financial highlights (see page 2 of the prospectus) for the period from June 20, 1995 (date of initial public investment) to October 31, 1995. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Michigan Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations, the changes in its net assets, and its financial highlights for the period from June 20, 1995 (date of initial public investment) to October 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 26 ADDRESSES - -------------------------------------------------------------------------------- Michigan Municipal Cash Trust Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 - -------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - -------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - --------------------------------------------------------------------------------
27 - -------------------------------------------------------------------------------- MICHIGAN MUNICIPAL CASH TRUST PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 [FEDERATED SECURITIES CORP. LOGO] Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Cusip 314229725 G01212-01 (12/95) [RECYCLED PAPER LOGO] RECYCLED MICHIGAN MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus of Michigan Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal Trust (the "Trust") dated dated December 31, 1995. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-235-4669. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated dated December 31, 1995 FEDERATED SECURITIES CORP. Distributor A subsidiary of Federated Investors INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 2 When-Issued and Delayed Delivery Transactions 3 Repurchase Agreements 3 Credit Enhancement 3 MICHIGAN INVESTMENT RISKS 4 INVESTMENT LIMITATIONS 6 Regulatory Compliance 9 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 Share Ownership 10 Trustees Compensation 18 Trustee Liability 19 INVESTMENT ADVISORY SERVICES 20 Investment Adviser 20 Advisory Fees 20 BROKERAGE TRANSACTIONS 21 OTHER SERVICES 22 Fund Administration 22 Custodian and Portfolio Recordkeeper. 22 Transfer Agent 13 Independent Public Accountants 13 SHAREHOLDER SERVICES AGREEMENT 23 DETERMINING NET ASSET VALUE 23 REDEMPTION IN KIND 24 MASSACHUSETTS PARTNERSHIP LAW 25 THE FUND'S TAX STATUS 14 PERFORMANCE INFORMATION 25 Yield 15 Effective Yield 26 Tax-Equivalent Yield 26 Tax-Equivalency Table 27 Total Return 28 Performance Comparisons 29 ABOUT FEDERATED INVESTORS 29 Mutual Fund Market 30 Institutional Clients 31 Trust Organizations 31 Broker/Dealers and Bank Broker/Dealer Subsidiaries 31 APPENDIX 19 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security, the issuer of any demand feature applicable to the security, or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of non-appropriation"); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1, or 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 rating categories. See "Regulatory Compliance." WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated on the Fund`s records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit-enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the "credit enhancer"), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. MICHIGAN INVESTMENT RISKS Michigan's economy continues to be among the most cyclical of states, remaining heavily dependent on domestic auto production and durable goods consumption. While manufacturing comprises 23% of the total jobs in the state in 1991, relative to 17% nationally, it comprises a lesser share than in the 1970s when it was 35%. The automobile industry has reduced its share of employment to 6.9% of total employment, compared with 10.8% in 1979. In fact, Michigan's economy continues to shift away from durable goods manufacturing to a more diversified base reliant on services and trade. This shift to jobs in service and trade industries has, however, resulted in declines in per capita income relative to the nation. As of June 1995, unemployment stood at 6.2%, still above the national level of 5.6%. However, the economic recovery from the early 1990s recession has proved hearty in Michigan as employment levels reached an all-time high, attracting more workers into the labor force. On August 19, 1993, the Governor of Michigan signed into law Act 145, Public Acts of Michigan, 1993 (Act 145), a measure which significantly impacted financing of primary and secondary school operations and which has resulted in additional property tax and school reform legislation. Michigan's school finance reform shifts the responsibility of funding schools away from the local district and their real property tax bases to the state and an earmarked portion of sales taxes. Moreover, the state government is also subject to a revenue raising cap which is tied to the annual state personal income growth. The margin between existing revenue and the constitutional cap is greatly narrowed now that the state absorbs the costs of funding the local schools. Over the long term the cap may reduce the state's flexibility to deal with adverse financial developments. Concerning Michigan's fiscal policy, the state has proven that it can maintain a balanced budget, low debt levels and high reserves. While the state's Rainy Day Fund was drawn down substantially during fiscal years 1990-92 in order to meet budget needs of the state during fiscal stress, spending restraint and an improved economy enabled the state to begin to restore balances in fiscal 1993. By the end of fiscal 1994, the balances in the fund were $780 million and are expected to reach $1.1 billion by the end of fiscal 1995. This makes the fund one of the highest in the nation. Because of the increased revenues in fiscal 1995, the governor proposed a tax cut which would reduce revenues by $186 million. The governor also is proposing that the state increase the deposit to the Rainy Day Fund by $110 million, ending the year with a nominal $2 million surplus in the General Fund. The tax cuts would reduce personal income taxes by increasing the personal exemption from $2100 to $2400 and would reduce the Single Business Tax by excluding FICA, workers compensation, and unemployment compensation from the tax liability base. Reductions are also made to the intangibles tax. The full annual cost of the tax cuts will be $246 million in fiscal 1996. While Michigan's economy is in good standing now because of conservative budgeting practices and the improved economy, the enduring effectiveness of the state's financial management will continue to be tested by economic cycles. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as are necessary for clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of the value of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may purchase or hold portfolio securities permitted by its investment objective, policies, and limitations, or Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, including limited partnership interests, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not invest 25% or more of the value of its total assets in any one industry, or in industrial development bonds or other securities the interest upon which is paid from revenues of similar types of projects, except that the Fund may invest 25% or more of the value of its total assets in cash, cash items, or securities issued or guaranteed by the government of the United States or its agencies, or instrumentalities and repurchase agreements collateralized by such U.S. government securities. The above limitations cannot be changed without shareholder approval. The following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its total assets in securities subject to restrictions on resale under federal securities law, except for restricted securities determined to be liquid under criteria established by the Trustees. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers (including companies responsible for paying principal and interest on industrial development bonds) which have records of less than three years of continuous operations, including the operation of any predecessor. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES The Fund will not purchase or retain the securities of any issuer if the officers and Trustees of the Trust or its investment adviser, owning individually more than .50 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. INVESTING IN MINERALS The Fund will not purchase or sell interests in oil, gas, or other mineral exploration or development programs or leases, although it may purchase the securities of issuers which invest in or sponsor such programs. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund does not intend to borrow money or pledge securities in excess of 5% of the value of its net assets during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in its prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments, as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President of the Trust . Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds; formerly, Senior Partner, Ernst & Young LLP. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; President, Northgate Village Development Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Director, Trustee, or Managing General Partner of the Funds; formerly, President, Naples Property Management, Inc. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee, or Managing General Partner of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine and Member, Board of Trustees, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director, Trustee, or Managing General Partner of the Funds. Edward L. Flaherty, Jr.@ Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director, Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson * Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. and Federated Administrative Services. Peter E. Madden Seacliff 562 Bellevue Avenue Newport, RI Birthdate: March 16, 1942 Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, Trustee, or Managing General Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation. Gregor F. Meyer Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General Partner of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director, Trustee or Managing General Partner of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics and Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; founding Chairman, National Advisory Council for Environmental Policy and Technology and Federal Emergency Management Advisory Board. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/marketing consultant; Conference Coordinator, Non-profit entities; Director, Trustee, or Managing General Partner of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative Services, Federated Services Company, and Federated Shareholder Services; 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 of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. David M. Taylor Federated Investors Tower Pittsburgh, PA Birthdate: January 13, 1947 Treasurer Senior Vice President, Controller, and Trustee, Federated Investors; Controller, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., and Passport Research, Ltd.; Senior Vice President, Federated Shareholder Services; Vice President, Federated Administrative Services; Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President and Secretary Executive Vice President, Secretary, General Counsel, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds. * This Trustee is deemed to be an "interested person" as defined in the Investment Company Act of 1940. @ Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. As used in the table above, "The Funds" and "Funds" mean the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5 Years; 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; 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 U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut 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; The Virtus Funds; World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 4, 1995, the following shareholder(s) of record owned 5% or more of the outstanding shares of the Michigan Municipal Cash Trust: First MAR & Co., Marquette, MI, 10.34%; ENBANCO, Traverse City, MI, 10.74%; McDonald & Co. Securities Inc., Cincinnati, OH, 45.69%; and ISI Automation Products Group, Mt. Clemens, MI, 8.44%. TRUSTEES COMPENSATION
AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 68 other investment companies in the Fund Complex Thomas G. Bigley $2,458 $20,688 for the Trust and Trustee 49 other investment companies in the Fund Complex John T. Conroy, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex William J. Copeland $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Peter E. Madden $2,757 $90,563 for the Trust and Trustee 64 other investment companies in the Fund Complex Gregor F. Meyer $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex John E. Murray, Jr., $1,762 $0 for the Trust and Trustee 64 other investment companies in the Fund Complex Wesley W. Posvar $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Marjorie P. Smuts $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex
*Information is furnished for the fiscal year ended October 31, 1995. #The aggregate compensation is provided for the Trust which is comprised of fifteen portfolios. +The information is provided for the last calendar year. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the period from June 20, 1995 (date of initial public investment) to October 31, 1995, the adviser earned $32,107, all of which was waived. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this 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 fees. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the period from June 20, 1995 (date of initial public investment) to October 31, 1995, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund OTHER SERVICES FUND ADMINISTRATION Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. For the period from June 20, 1995 (date of initial public investment) to October 31, 1995, Federated Administrative Services earned $45,548. Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, holds approximately 20% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. CUSTODIAN AND PORTFOLIO RECORDKEEPER State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. TRANSFER AGENT As transfer agent, Federated Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on the size, type and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES AGREEMENT This arrangement permits the payment of fees to Federated Shareholder Services and financial institutions to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Trustees expect that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the period from June 20, 1995 (date of initial public investment) to October 31, 1995,the Fund paid shareholder services fees in the amount of $16,054, none of which were waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. The Fund's yield for the seven-day period ended October 31, 1995, was 3.50%. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. The Fund's effective yield for the seven-day period ended October 31, 1995, was 3.56%. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal rate for individuals) and assuming that income is 100% exempt. The Fund's tax-equivalent yield for the seven-day period ended October 31, 1995, was 6.26%. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a "tax-free" investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1995 State of Michigan COMBINED FEDERAL AND STATE INCOME TAX BRACKET: 19.47% 32.47% 35.47% 40.47% 44.07% JOINT $1- $39,001- $94,251- $143,601- OVER RETURN 39,000 94,250 143,600 256,500 256,500 SINGLE $1- $23,351- $56,551- $117,951- OVER RETURN 23,350 56,550 117,950 256,500 256,500 Tax-Exempt Yield Taxable Yield Equivalent 1.50% 1.86% 2.22% 2.32% 2.52% 2.68% 2.00% 2.48% 2.96% 3.10% 3.36% 3.58% 2.50% 3.10% 3.70% 3.87% 4.20% 4.47% 3.00% 3.73% 4.44% 4.65% 5.04% 5.36% 3.50% 4.35% 5.18% 5.42% 5.88% 6.26% 4.00% 4.97% 5.92% 6.20% 6.72% 7.15% 4.50% 5.59% 6.66% 6.97% 7.56% 8.05% 5.00% 6.21% 7.40% 7.75% 8.40% 8.94% 5.50% 6.83% 8.14% 8.52% 9.24% 9.83% 6.00% 7.45% 8.88% 9.30% 10.08% 10.73% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of Fund shares. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local income taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. Cumulative total return reflects the Fund's total performance over a specific period of time. For the period from June 20, 1995 (date of initial public investment) through October 31, 1995, the cumulative total return for the Fund was 1.35%. This total return is representative of only 4 months of activity since the date of initial public investment. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: O LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. o MONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1994, Federated Investors managed more than $31 billion in assets across approximately 43 money market funds, including 17 government, 8 prime and 18 municipal with assets approximating $17 billion, $7.4 billion and $6.6 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors `international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $2 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: *Source: Investment Company Institute INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group ("S&P") note rating reflects the liquidity concerns and market access risks unique to notes. SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus sign (+) designation. SP-2 Satisfactory capacity to pay principal and interest. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a variable rate demand feature. The first rating (long-term rating) addresses the likelihood of repayment of principal and interest when due, and the second rating (short-term rating) describes the demand characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. LONG-TERM DEBT RATINGS AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rate "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATINGS Moody's Investors Service, Inc. (Moody's) short-term ratings are designated Moody's Investment Grade (MIG or VMIG) (see below)). The purpose of the MIG or VMIG ratings is to provide investors with a simple system by which the relative investment qualities of short-term obligations may be evaluated. MIG1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad based access to the market for refinancing. MIG2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the first representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the second representing an evaluation of the degree of risk associated with the demand feature. The VMIG rating can be assigned a 1 or 2 designation using the same definitions described above for the MIG rating. COMMERCIAL PAPER (CP) RATINGS P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short- term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well established industries, high rates of return on funds employed, conservative capitalization structure with moderate reliance on debt and ample asset protection, broad margins in earning coverage of fixed financial charges and high internal cash generation, well-established access to a range of financial markets and assured sources of alternate liquidity P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short- term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. LONG-TERM DEBT RATINGS AAA Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes is can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in AAA securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. NR Indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P or Moody's with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated A-1 or P-1. NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated "AAA" by S&P or "Aaa" by Moody's. NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated "AA" by S&P or "Aa" by Moody's. NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated "A" by S&P or Moody's. Cusip 314229725 GEORGIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) PROSPECTUS The shares of Georgia Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Georgia municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Georgia, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and the income tax imposed by the State of Georgia consistent with stability of principal and liquidity. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information, or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Georgia Municipal Securities 5 Investment Risks 6 Non-Diversification 6 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ Special Purchases Shares 10 HOW TO REDEEM SHARES 10 - ------------------------------------------------------ Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 12 - ------------------------------------------------------ TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 State and Local Taxes 13 PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL STATEMENTS 15 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 27 - ------------------------------------------------------ ADDRESSES 28 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)........................................ None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)........................................ None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)...................... None Redemption Fee (as a percentage of amount redeemed, if applicable)........... None Exchange Fee................................................................. None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)............................................. 0.09% 12b-1 Fee.................................................................... None Total Other Expenses......................................................... 0.50% Shareholder Services Fee................................................ 0.25% Total Operating Expenses(2)........................................ 0.59%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The total Fund operating expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1996. The total operating expenses were 0.25% for the fiscal year ended October 31, 1995 and would have been 1.00% absent the voluntary waiver of the management fee and the voluntary reimbursement of certain other operating expenses. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ---------------------------------------------------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period......... $6 $19 $33 $ 74
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. GEORGIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of Independent Public Accountants on page 27.
PERIOD ENDED OCTOBER 31, 1995(A) ------------------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 - --------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------------------------------- Net investment income 0.01 - --------------------------------------------------------------------- LESS DISTRIBUTIONS - --------------------------------------------------------------------- Distributions from net investment income (0.01) - --------------------------------------------------------------------- ----- NET ASSET VALUE, END OF PERIOD $1.00 - --------------------------------------------------------------------- ----- TOTAL RETURN(B) 0.73% - --------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------------------------------- Expenses 0.25%* - --------------------------------------------------------------------- Net investment income 3.81%* - --------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.75%* - --------------------------------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------------------------------- Net assets, end of period (000 omitted) $111,278 - ---------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from August 22, 1995, (date of initial public investment) to October 31, 1995. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The Fund is designed for financial institutions acting in an agency or fiduciary capacity as a convenient means of accumulating an interest in a professionally managed, non-diversified portfolio investing primarily in short-term Georgia municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Georgia taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the income tax imposed by the State of Georgia consistent with stability of principal and liquidity. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Georgia municipal securities (as defined below) maturing in 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax Georgia state income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Georgia and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Georgia state income tax ("Georgia Municipal Securities"). Examples of Georgia 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 debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Georgia Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Georgia Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, or default of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid, the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Georgia Municipal Securities is subject to the federal alternative minimum tax. GEORGIA MUNICIPAL SECURITIES Georgia Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Georgia Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Georgia Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Georgia Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Georgia Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Georgia Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Georgia Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Georgia Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Georgia Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. NON-DIVERSIFICATION The Fund is non-diversified. An investment in the Fund, therefore, will entail greater risk than would exist if it were diversified 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. However, the Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that, at the end of each quarter of each taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer and that with respect to the remainder of the Fund's total assets, 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 assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The adviser has undertaken to reimburse the Fund up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser also may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $72 billion invested across more than 260 funds under management and/or administration by its subsidiaries, as of December 31, 1994, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,750 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. State securities laws may require certain financial institutions such as depository institutions to register as dealers. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25 of 1% of the average daily net asset value of Fund shares, computed at an annual rate, to obtain certain personal services for shareholders and provide maintenance of shareholder accounts ("shareholder services"). From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor may pay financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide certain services to shareholders. These services may include, but are not limited to, distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of shares. Any fees paid for these services by the distributor will be reimbursed by the adviser and not the Fund. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting ser- vices) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate as specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS -------------------------------- ----------------------------------- .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. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of its shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting total liabilities from total assets and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Georgia Municipal Cash Trust; Fund Number (This number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to Georgia Municipal Cash Trust. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each shareholder has one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio, only shares of that portfolio are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 4, 1995, COBATCO, Columbus, GA owned 26.91% of the voting securities of the Fund, and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Georgia. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. GEORGIA TAXES. Under existing Georgia law, shareholders of the Fund will not be subject to individual or corporate Georgia income taxes on distributions from the Fund to the extent that such distributions represent exempt-interest dividends for federal income tax purposes that are attributable to (1) interest-bearing obligations issued by or on behalf of the State of Georgia or its political subdivisions, or (2) interest on obligations of the United States or of any other issuer whose obligations are exempt from state income taxes under federal law. Distributions, if any, derived from capital gains or other sources generally will be taxable for Georgia income tax purposes to shareholders of the Fund who are subject to the Georgia income tax. For purposes of the Georgia intangibles tax, shareholders may exclude from the share value of the Fund that portion of the total share value which is attributable to the value of United States obligations held in the Fund. To the extent that the Fund is comprised of other types of obligations, shares of the Fund will be taxable at the rate of 10 cents per $1000 in value of the shares held on January 1 of each year. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its total return, yield, effective yield, and tax-equivalent yield. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. GEORGIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--107.2% - ----------------------------------------------------------------------- GEORGIA--107.2% ------------------------------------------------------- $ 1,000,000 Albany-Dougherty County, GA Hospital Authority, VMIG1 $ 1,000,000 Refunding Revenue Anticipation Certificates (Series 1991) Weekly VRDNs (AMBAC INS)/ (Credit Local de France LIQ) ------------------------------------------------------- 4,000,000 Athens-Clarke County, GA, (Series 1988), 3.80% CP VMIG1 4,000,000 (Rhone Merieux, Inc. Project)/(Societe Generale, Paris LOC), Mandatory Tender 11/7/1995 ------------------------------------------------------- 1,600,000 Atlanta, GA, Urban Residential Finance Authority, A-1 1,600,000 Multifamily Housing Revenue Bonds (Series 1995) Weekly VRDNs (West End Housing Development Project)/ (First Union National Bank, Charlotte, NC LOC) ------------------------------------------------------- 2,500,000 Atlanta, GA, Urban Residential Finance Authority, A-1 2,500,000 Multifamily Rental Housing Revenue Refunding Bonds (Series 1988A), 4.00% TOBs (West Paces Club Towers Project)/(Sanwa Bank Ltd, Osaka LOC), Optional Tender 2/1/1996 ------------------------------------------------------- 3,980,000 Brunswick, GA, Housing Authority, (Series S93) A-1 3,980,000 Weekly VRDNs (Island Square Apartments)/ (Columbus Bank and Trust Co., GA LOC) ------------------------------------------------------- 2,000,000 Burke County, GA Development Authority, (Series 1992A), A-1+ 2,000,000 3.70% CP (Oglethorpe Power Corp.)/ (Credit Suisse, Zurich LOC), Mandatory Tender 1/18/1996 ------------------------------------------------------- 1,400,000 Burke County, GA Development Authority, A-1+ 1,400,000 (Series 1992A), 3.80% CP (Oglethorpe Power Corp.)/ (Credit Suisse, Zurich LOC), Mandatory Tender 1/18/1996 ------------------------------------------------------- 2,250,000 Carrolton, GA Payroll Development Authority, P-1 2,250,000 (Series 1993) Weekly VRDNs (Sunox, Inc. Project)/ (First Union National Bank, Charlotte, NC LOC) -------------------------------------------------------
GEORGIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- GEORGIA--CONTINUED ------------------------------------------------------- $ 3,000,000 Cherokee County, GA Development Authority Weekly VRDNs A-1+ $ 3,000,000 (Seaboard Farms of Canton, Inc. Project)/ (Bank of Nova Scotia, Toronto LOC) ------------------------------------------------------- 2,155,000 Cherokee County, GA Development Authority, Variable P-1 2,155,000 Rate IDRB Weekly VRDNs (Morrison Products, GA)/ (Society National Bank, Cleveland, OH LOC) ------------------------------------------------------- 3,945,000 Cobb County, GA IDA Weekly VRDNs (Atlanta RDC P-1 3,945,000 Co.)/(First Union National Bank, Charlotte, NC LOC) ------------------------------------------------------- 1,900,000 Cobb County, GA IDA, IDRB (Series 1995) Weekly VRDNs A-1 1,900,000 (Consolidated Engineering Company, Inc. Project)/ (Nationsbank of Georgia, N.A. LOC) ------------------------------------------------------- 1,270,000 Columbia County, GA Development Authority, Aa2 1,270,000 (Series 1991) Weekly VRDNs (Augusta Sportswear, Inc. Project)/(Wachovia Bank of Georgia NA, Atlanta LOC) ------------------------------------------------------- 6,405,000 Columbus, GA IDA Industrial & Port Development A-1 6,405,000 Commission, (Series 1992) Weekly VRDNs (Maine Street Village Partnership)/(Columbus Bank and Trust Co., GA LOC) ------------------------------------------------------- 1,575,000 Columbus, GA IDA, (Series 90B) Weekly VRDNs A-1 1,575,000 (R. P. Real Estate, Inc.)/(Columbus Bank and Trust Co., GA LOC) ------------------------------------------------------- 6,000,000 Crisp County, GA Development Authority, (Series B), A- 6,000,000 4.30% TOBs (Masonite Corporation)/(International Paper Co. GTD), Optional Tender 9/1/1996 ------------------------------------------------------- 1,775,000 De Kalb County, GA Development Authority, (Series 1992) P-1 1,775,000 Weekly VRDNs (House of Cheatham, Inc. Project)/ (Nationsbank of Georgia, N.A. LOC) ------------------------------------------------------- 600,000 De Kalb County, GA Development Authority, (Series 1993) A1 600,000 Weekly VRDNs (Pet, Inc.)/(PNC Bank, N.A. LOC) ------------------------------------------------------- 1,850,000 De Kalb County, GA, 5.00% TANs, 12/29/1995 SP-1+ 1,853,514 -------------------------------------------------------
GEORGIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- GEORGIA--CONTINUED ------------------------------------------------------- $ 2,000,000 Forsythe County, GA Development Authority, IDRB Aaa $ 2,000,000 (Series 1995) Weekly VRDNs (American BOA, Inc. Project)/(Dresdner Bank Ag, Frankfurt LOC) ------------------------------------------------------- 9,240,000 Franklin County, GA Industrial Building Authority, A-1+ 9,240,000 (Series 1995) Weekly VRDNs (Bosal Industries, Inc.)/ (ABN AMRO Bank N.V., Amsterdam LOC) ------------------------------------------------------- 3,185,000 Fulco, GA Hospital Authority Weekly VRDNs A-1+ 3,185,000 (Piedmont Hospital)/(Trust Company Bank, Atlanta LOC) ------------------------------------------------------- 2,000,000 Fulco, GA Hospital Authority, (Series 1989), 3.70% CP VMIG1 2,000,000 (St. Joseph's Hospital of Atlanta)/(Trust Company Bank, Atlanta LOC), Mandatory Tender 1/17/1996 ------------------------------------------------------- 4,470,000 Fulton County, GA Housing Authority, (Series 1994B) VMIG1 4,470,000 Weekly VRDNs (Champions Green Apartments Project)/ (SouthTrust Bank of Alabama, Birmingham LOC) ------------------------------------------------------- 1,000,000 Fulton County, GA Housing Authority, Multifamily A-1+ 1,000,000 Housing Revenue Refunding Bonds (Series 1994) Weekly VRDNs (Spring Creek Crossing Project)/ (Wachovia Bank of Georgia NA, Atlanta LOC) ------------------------------------------------------- 2,200,000 Fulton County, GA IDA Weekly VRDNs P-1 2,200,000 (Automatic Data Processing, Inc.) ------------------------------------------------------- 4,000,000 Fulton County, GA IDA Weekly VRDNs (C.K.S. Packaging, P-1 4,000,000 Inc.)/(SouthTrust Bank of Alabama, Birmingham LOC) ------------------------------------------------------- 2,000,000 Georgia State, 7.25% BONDs, 9/1/1996 Aaa 2,055,021 ------------------------------------------------------- 3,800,000 Gwinnett County, GA IDA Daily VRDNs (Volvo)/ P-1 3,800,000 (Union Bank of Switzerland, Zurich LOC) ------------------------------------------------------- 2,000,000 Gwinnett County, GA, Certificates of Participation AA+ 2,056,373 Water & Sewer, 7.75% BONDs, 8/1/1996 ------------------------------------------------------- 3,180,000 La Grange, GA, Multi-Family Housing Authority, Revenue P-1 3,180,000 Bonds, 4.25% TOBs (Lee's Crossing Project Phase II)/ (Barnett Bank of Jacksonville LOC), Optional Tender 5/1/1996 -------------------------------------------------------
GEORGIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- GEORGIA--CONTINUED ------------------------------------------------------- $ 3,000,000 La Grange, GA, Multi-Family Housing Authority, Revenue P-1 $ 3,000,000 Bonds, 4.25% TOBs (Lee's Crossing Project Phase I)/ (Barnett Bank of Jacksonville LOC), Optional Tender 5/1/1996 ------------------------------------------------------- 1,000,000 Macon-Bibb County, GA Industrial Authority, IDRB A-1 1,000,000 (Series 1990) Weekly VRDNs (Diamond Plastics Corporation Project)/(Nationsbank, N.A. (Carolinas) LOC) ------------------------------------------------------- 1,280,000 Macon-Bibb County, GA Urban Development Authority, A-1+ 1,280,000 Refunding Revenue Bonds (Series 1995) Weekly VRDNs (Macon Hotel Investors Project)/ (NBD Bank, N.A., Detroit, MI LOC) ------------------------------------------------------- 2,800,000 Municipal Electric Authority of Georgia, (Series A-1 2,800,000 1994D), 4.00% CP (Credit Suisse, Zurich LIQ), Mandatory Tender 12/12/1995 ------------------------------------------------------- 1,600,000 Municipal Electric Authority of Georgia, 3.85% CP, A-1 1,600,000 Mandatory Tender 12/8/1995 ------------------------------------------------------- 4,500,000 Richmond County, GA Development Authority, A-1+ 4,500,000 Solid Waste Disposal Revenue Bonds, (Series 1995) Weekly VRDNs (Federal Paper Board Co., Inc.)/ (Wachovia Bank of Georgia NA, Atlanta LOC) ------------------------------------------------------- 3,500,000 Rockdale County, GA Development Authority, (Series Aa3 3,500,000 1995) Weekly VRDNs (Great Southern Wood Preserving Co.)/(Sun Bank NA, Orlando LOC) ------------------------------------------------------- 2,500,000 Rockdale County, GA Hospital Authority, Revenue VMIG1 2,500,000 Anticipation Certificates (Series 1994) Weekly VRDNs (Rockdale Hospital)/(Trust Company Bank, Atlanta LOC) ------------------------------------------------------- 5,750,000 Savannah, GA EDA, (Series 1995A) Weekly VRDNs (Home P-1 5,750,000 Depot, Inc.) ------------------------------------------------------- 1,000,000 Savannah, GA Housing Authority, Multi-Family Housing A-1 1,000,000 Revenue Bonds (Series 1985 B) Weekly VRDNs (Somerset Wharf Project)/(Amsouth Bank N.A., Birmingham LOC) -------------------------------------------------------
GEORGIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- ------------------------------------------------------- ------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------- GEORGIA--CONTINUED ------------------------------------------------------- $ 1,500,000 Screven County, GA IDA, (Series 1995) Weekly VRDNs Aa3 $ 1,500,000 (Sylvania Yarn Systems, Inc. Project)/(Trust Company Bank, Atlanta LOC) ------------------------------------------------------- 1,000,000 Wayne County, GA, IDA, Revenue Bonds, (Series 1995) A-1 1,000,000 Weekly VRDNs (Harsco Corp.)/(Nationsbank, N.A. (Carolinas) LOC) ------------------------------------------------------- 1,500,000 Whitfield County, GA Development Authority Weekly VRDNs NR 1,500,000 (Franklin Industries Inc., Project)/ (Nationsbank of Virginia, N.A. LOC) ------------------------------------------------------- ------------ TOTAL INVESTMENTS (AT AMORTIZED COST)(A) $119,324,908 ------------------------------------------------------- ------------
Securities that are subject to alternative minimum tax represent 53.9% of the portfolio as calculated based upon total portfolio market value. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. (a) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($111,277,623) at October 31, 1995. GEORGIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronyms are used throughout this portfolio: AMBAC --American Municipal Bond Assurance Corporation CP --Commercial Paper EDA --Economic Development Authority GTD --Guaranty IDA --Industrial Development Authority IDRB --Industrial Development Revenue Bonds INS --Insured LIQ --Liquidity Agreement LOC --Letter of Credit TANs --Tax Anticipation Notes TOBs --Tender Option Bonds VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) GEORGIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS: - -------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $119,324,908 - -------------------------------------------------------------------------------- Cash 236,785 - -------------------------------------------------------------------------------- Income receivable 549,984 - -------------------------------------------------------------------------------- Receivable for shares sold 4,645 - -------------------------------------------------------------------------------- Deferred expenses 29,967 - -------------------------------------------------------------------------------- ------------ Total assets 120,146,289 - -------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------------------- Payable for investments purchased $8,680,000 - ------------------------------------------------------------------- Income distribution payable 122,375 - ------------------------------------------------------------------- Accrued expenses 66,291 - ------------------------------------------------------------------- ---------- Total liabilities 8,868,666 - -------------------------------------------------------------------------------- ------------ NET ASSETS for 111,277,623 shares outstanding $111,277,623 - -------------------------------------------------------------------------------- ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - -------------------------------------------------------------------------------- $111,277,623 / 111,277,623 shares outstanding $1.00 - -------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) GEORGIA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS PERIOD ENDED OCTOBER 31, 1995(A) - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ------------------------------------------------------------------------------------- Interest $707,458 - ------------------------------------------------------------------------------------- EXPENSES: - ------------------------------------------------------------------------------------- Investment advisory fee $ 87,222 - ------------------------------------------------------------------------ Administrative personnel and services fee 23,973 - ------------------------------------------------------------------------ Custodian fees 4,360 - ------------------------------------------------------------------------ Transfer and dividend disbursing agent fees and expenses 487 - ------------------------------------------------------------------------ Portfolio accounting fees 10,372 - ------------------------------------------------------------------------ Shareholder services fee 43,611 - ------------------------------------------------------------------------ Share registration costs 1,033 - ------------------------------------------------------------------------ Printing and postage 2,500 - ------------------------------------------------------------------------ Miscellaneous 105 - ------------------------------------------------------------------------ --------- Total expenses 173,663 - ------------------------------------------------------------------------ Waivers and reimbursements-- - ------------------------------------------------------------------------ Waiver of investment advisory fee $(87,222) - ------------------------------------------------------------- Reimbursement of other operating expenses (42,829) - ------------------------------------------------------------- -------- Total waivers and reimbursements (130,051) - ------------------------------------------------------------------------ --------- Net expenses 43,612 - ------------------------------------------------------------------------------------- -------- Net investment income $663,846 - ------------------------------------------------------------------------------------- --------
(a) For the period from August 22, 1995 (date of initial public investment) to October 31, 1995. (See Notes which are an integral part of the Financial Statements) GEORGIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
PERIOD ENDED OCTOBER 31, 1995(A) -------------------- INCREASE (DECREASE) IN NET ASSETS: - ----------------------------------------------------------------------- OPERATIONS-- - ----------------------------------------------------------------------- Net investment income $ 663,846 - ----------------------------------------------------------------------- ------------------ DISTRIBUTIONS TO SHAREHOLDERS-- - ----------------------------------------------------------------------- Distributions from net investment income (663,846) - ----------------------------------------------------------------------- ------------------ SHARE TRANSACTIONS-- - ----------------------------------------------------------------------- Proceeds from sale of shares 276,631,071 - ----------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 363,049 - ----------------------------------------------------------------------- Cost of shares redeemed (165,716,497) - ----------------------------------------------------------------------- ------------------ Change in net assets resulting from share transactions 111,277,623 - ----------------------------------------------------------------------- ------------------ Change in net assets 111,277,623 - ----------------------------------------------------------------------- NET ASSETS: - ----------------------------------------------------------------------- Beginning of period -- - ----------------------------------------------------------------------- ------------------ End of period $ 111,277,623 - ----------------------------------------------------------------------- ------------------
(a) For the period from August 22, 1995 (date of initial public investment) to October 31, 1995. (See Notes which are an integral part of the Financial Statements) GEORGIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of fifteen non-diversified portfolios. The financial statements included herein are only those of Georgia Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS --Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS --The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. CONCENTRATION OF CREDIT RISK --Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers in that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1995, 84.7% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The value of investments insured by or supported (backed) by a letter of credit for any one institution or agency do not exceed 10.0% of total investments. GEORGIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). At October 31, 1995, capital paid-in aggregated $ 111,277,623. Transactions in shares were as follows:
PERIOD ENDED OCTOBER 31, 1995(A) - ----------------------------------------------------------------------- ------------------- Shares sold 276,631,071 - ----------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 363,049 - ----------------------------------------------------------------------- Shares redeemed (165,716,497) - ----------------------------------------------------------------------- ---------------- Net change resulting from share transactions 111,277,623 - ----------------------------------------------------------------------- ----------------
(a) Reflects operations for the period from August 22, 1995 (date of initial public investment) to October 31, 1995. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. This fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net assets of the GEORGIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- Fund for the period. This fee is to obtain certain services for shareholders and to maintain shareholder accounts. TRANSFER AGENT FEES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses of $13,648 were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organizational expenses during the five year period following effective date. For the period ended October 31, 1995, the Fund paid $152 pursuant to this agreement. INTERFUND TRANSACTIONS--During the period ended October 31, 1995, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser, common Directors/ Trustees, and/ or common Officers. These transactions were made at current market value pursuant to Rule 17a-7 under the Act amounting to $140,235,000 and $86,670,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Georgia Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Georgia Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1995, the related statement of operations and changes in net assets, and the financial highlights (see page 2 of the prospectus) for the period from August 22, 1995 (date of initial public investment) to October 31, 1995. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Georgia Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1995, the results of its operations, the changes in its net assets, and its financial highlights for the period from August 22, 1995 (date of initial public investment) to October 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1995 ADDRESSES - -------------------------------------------------------------------------------- Georgia Municipal Cash Trust Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 - ----------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company P.O. Box 8600 Boston, MA 02266-8600 - ----------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - -----------------------------------------------------------------------------------------------
28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GEORGIA MUNICIPAL CASH TRUST PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1995 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 CUSIP 314229691 G01204-01 (12/95) (LOGO) GEORGIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus of Georgia Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal Trust (the "Trust") dated December 31, 1995. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-235-4669. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1995 Federated Securities Corp. Distributor A subsidiary of Federated Investors INVESTMENT POLICIES 3 Acceptable Investments 3 Participation Interests 3 Municipal Leases 3 Ratings 4 When-Issued and Delayed Delivery Transactions 5 Repurchase Agreements 5 Credit Enhancement 6 GEORGIA INVESTMENT RISKS 6 INVESTMENT LIMITATIONS 3 Regulatory Compliance 11 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 Share Ownership 10 Trustees Compensation 11 Trustee Liability 23 INVESTMENT ADVISORY SERVICES 23 Investment Adviser 23 Advisory Fees 24 BROKERAGE TRANSACTIONS 25 OTHER SERVICES 26 Fund Administration 26 Custodian and Portfolio Recordkeeper. 27 Transfer Agent 13 Independent Public Accountants 13 SHAREHOLDER SERVICES AGREEMENT 27 DETERMINING NET ASSET VALUE 28 REDEMPTION IN KIND 29 MASSACHUSETTS PARTNERSHIP LAW 29 THE FUND'S TAX STATUS 30 PERFORMANCE INFORMATION 30 Yield 15 Effective Yield 31 Tax-Equivalent Yield 31 Tax-Equivalency Table 16 Total Return 17 Performance Comparisons 34 ABOUT FEDERATED INVESTORS 35 Mutual Fund Market 36 Institutional Clients 36 Trust Organizations 36 Broker/Dealers and Bank Broker/Dealer Subsidiaries 36 APPENDIX 19 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security, the issuer of any demand feature applicable to the security, or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of non- appropriation"); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1, or 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 rating categories. See "Regulatory Compliance." WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated on the Fund`s records at the trade date. These assets are marked to market daily and are maintained until the transaction has been settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the "credit enhancer"), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. GEORGIA INVESTMENT RISKS Georgia's AAA rating by Fitch, Aaa rating by Moody's, and AA+ rating by S&P reflect the state's positive economic trends, conservative financial management, improved financial position, and low debt burden. The state's recovery from the recent recession has been steady, with a rate surpassing regional trends. However, the rate of recovery is still at half the rate of earlier recoveries. Georgia ranks among the top five states in the nation in employment and total population growth. Job growth has been mainly centered in business and health services. Manufacturing employment grew slightly. Total non-farm employment grew 5.0% in 1994, well above the U.S. rate of 2.6%. As of April 1995, the state's unemployment rate was 4.4% while the national rate stood at 5.5%. The state's economy is receiving a boost from the economic activity associated with the 1996 Olympic Games. The economic benefit of the games has spawned considerable construction activity as well as additional revenue to come at the time of the events. The state closed fiscal 1995 with positive financial results, and the revenue shortfall reserve fully funded at $267 million (3.0% of revenues) for the third consecutive year. The state's adopted budget for fiscal 1996 calls for state spending of $10.7 billion--a $915.6 million increase over the fiscal 1995 budget. The funds will come from three sources. $10.1 billion will come from the state's revenue estimate of taxes and fees, an increase of $642 million. Lottery proceeds will contribute $435 million, an increase of $70 million. Indigent Care Trust Fund receipts will add $146 million for fiscal 1996. The fund's concentration in securities issued by Georgia and its political subdivisions provide a greater level of risk than a fund whose assets are diversified across numerous states and municipal issuers. The ability of Georgia or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political and demographic conditions within Georgia; and the underlying fiscal condition of the state, its counties, and its municipalities. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as are necessary for clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money for investment leverage, but rather as a temporary, extraordinary, or emergency when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of the measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests value of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may purchase or hold portfolio securities permitted by its investment objective, policies, and limitations, or the Trust's Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, including limited partnership interests, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not invest 25% or more of the value of its total assets in any one industry, or in industrial development bonds or other securities the interest upon which is paid from revenues of similar types of projects, except that the Fund may invest 25% or more of the value of its total assets in cash, cash items, or securities issued or guaranteed by the government of the United States or its agencies, or instrumentalities and repurchase agreements collateralized by such U.S. government securities. The above limitations cannot be changed without shareholder approval. The following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its total assets in securities subject to restrictions on resale under federal securities law, except for restricted securities determined to be liquid under criteria established by the Trustees. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers (including companies responsible for paying principal and interest on industrial development bonds) which have records of less than three years of continuous operations, including the operation of any predecessor. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES The Fund will not purchase or retain the securities of any issuer if the officers and Trustees of the Trust or its investment adviser, owning individually more than .50 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. INVESTING IN MINERALS The Fund will not purchase or sell interests in oil, gas, or other mineral exploration or development programs or leases, although it may purchase the securities of issuers which invest in or sponsor such programs. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund does not intend to borrow money or pledge securities in excess of 5% of the value of its net assets during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in its prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments, as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President of the Trust . Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds; formerly, Senior Partner, Ernst & Young LLP. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; President, Northgate Village Development Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Director, Trustee, or Managing General Partner of the Funds; formerly, President, Naples Property Management, Inc. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee, or Managing General Partner of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine and Member, Board of Trustees, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director, Trustee, or Managing General Partner of the Funds. Edward L. Flaherty, Jr.@ Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director, Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson * Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. and Federated Administrative Services. Peter E. Madden Seacliff 562 Bellevue Avenue Newport, RI Birthdate: March 16, 1942 Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, Trustee, or Managing General Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation. Gregor F. Meyer Henny, Kochuba, Meyer and Flaherty Two Gateway Center - Suite 674 Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General Partner of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director, Trustee or Managing General Partner of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics and Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; founding Chairman, National Advisory Council for Environmental Policy and Technology and Federal Emergency Management Advisory Board. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/marketing consultant; Conference Coordinator, Non-profit entities; Director, Trustee, or Managing General Partner of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative Services, Federated Services Company, and Federated Shareholder Services; 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 of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. David M. Taylor Federated Investors Tower Pittsburgh, PA Birthdate: January 13, 1947 Treasurer Senior Vice President, Controller, and Trustee, Federated Investors; Controller, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., and Passport Research, Ltd.; Senior Vice President, Federated Shareholder Services; Vice President, Federated Administrative Services; Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President and Secretary Executive Vice President, Secretary, General Counsel, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds. * This Trustee is deemed to be an "interested person" as defined in the Investment Company Act of 1940. @ Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. As used in the table above, "The Funds" and "Funds" mean the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5 Years; 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; 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 U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut 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; The Virtus Funds; World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 4, 1995, the following shareholder(s) of record owned 5% or more of the outstanding shares of the Georgia Municipal Cash Trust: COBATCO, Columbus, GA, 26.91%; Scientific Games Inc., Alpharetta, GA, 6.25%; Valujet Airlines, Atlanta, GA, 13.94%; COMP DENT, Atlanta, GA, 16.24%; and American Megatrends Inc., Norcross, GA, 5.49%. TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 68 other investment companies in the Fund Complex Thomas G. Bigley $2,458 $20,688 for the Trust and Trustee 49 other investment companies in the Fund Complex John T. Conroy, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex William J. Copeland $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,520 $117,202 for the Trust and Trustee 64 other investment companies in the Fund Complex Peter E. Madden $2,757 $90,563 for the Trust and Trustee 64 other investment companies in the Fund Complex Gregor F. Meyer $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex John E. Murray, Jr., $1,762 $0 for the Trust and Trustee 64 other investment companies in the Fund Complex Wesley W. Posvar $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex Marjorie P. Smuts $3,166 $106,460 for the Trust and Trustee 64 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1995. #The aggregate compensation is provided for the Trust which is comprised of fifteen portfolios. +The information is provided for the last calendar year. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the period from August 22, 1995 (date of initial public investment) to October 31, 1995, the adviser earned $87,222, all of which was waived. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this 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 fees. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the period from August 22, 1995 (date of initial public investment) to October 31, 1995, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. For the period from August 22, 1995 (date of initial public investment) to October 31, 1995, Federated Administrative Services earned $23,973. Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, holds approximately 20% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. CUSTODIAN AND PORTFOLIO RECORDKEEPER State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. TRANSFER AGENT As transfer agent, Federated Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on the size, type and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES AGREEMENT This arrangement permits the payment of fees to Federated Shareholder Services and financial institutions to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Trustees expect that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the period from August 22, 1995 (date of initial public investment) to October 31, 1995,the Fund paid shareholder services fees in the amount of $43,611, none of which was waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. The Fund's yield for the seven-day period ended October 31, 1995, was 3.82%. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. The Fund's effective yield for the seven-day period ended October 31, 1995, was 3.89%. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal rate for individuals) and assuming that income is 100% exempt. The Fund's tax-equivalent yield for the seven-day period ended October 31, 1995, was 7.15%. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a "tax-free" investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1995 State of Georgia TAX BRACKET: Federal: 15.00% 28.00% 31.00% 36.00% 39.60% Combined Federal and State:21.00% 34.00% 37.00% 42.00% 45.60% Joint Return$1-39,000$39,001-94,250 $94,251-143,600$143,601-$256,500 OVER $256,500 Single Return$1-23,350 $23,351-56,550$56,551-117,950$117,951-256,500 OVER $256,500 Tax-Exempt Yield Taxable Yield Equivalent - --- 1.50% 1.90% 2.27% 2.38% 2.59% 2.76% 2.00 2.53 3.03 3.17 3.45 3.68 2.50 3.16 3.79 3.97 4.31 4.60 3.00 3.80 4.55 4.76 5.17 5.51 3.50 4.43 5.30 5.56 6.03 6.43 4.00 5.06 6.06 6.35 6.90 7.35 4.50 5.70 6.82 7.14 7.76 8.27 5.00 6.33 7.58 7.94 8.62 9.19 5.50 6.96 8.33 8.73 9.48 10.11 6.00 7.59 9.09 9.52 10.34 11.03 6.50 8.23 9.85 10.32 11.21 11.95 7.00 8.86 10.61 11.11 12.07 12.87 Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of Fund shares. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local income taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. Cumulative total return reflects the Fund's total performance over a specific period of time. For the period from August 22, 1995 (date of initial public investment) through October 31, 1995, the cumulative total return for the Fund was 0.73%. This total return is representative of only 2 months of activity since the date of initial public investment. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: O LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. o MONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1994, Federated Investors managed more than $31 billion in assets across approximately 43 money market funds, including 17 government, 8 prime and 18 municipal with assets approximating $17 billion, $7.4 billion and $6.6 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $2 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group ("S&P") note rating reflects the liquidity concerns and market access risks unique to notes. SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus sign (+) designation. SP-2 Satisfactory capacity to pay principal and interest. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a variable rate demand feature. The first rating (long-term rating) addresses the likelihood of repayment of principal and interest when due, and the second rating (short-term rating) describes the demand characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. LONG-TERM DEBT RATINGS AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rate "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATINGS Moody's Investors Service, Inc. (Moody's) short-term ratings are designated Moody's Investment Grade (MIG or VMIG) (see below)). The purpose of the MIG or VMIG ratings is to provide investors with a simple system by which the relative investment qualities of short-term obligations may be evaluated. MIG1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad based access to the market for refinancing. MIG2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the first representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the second representing an evaluation of the degree of risk associated with the demand feature. The VMIG rating can be assigned a 1 or 2 designation using the same definitions described above for the MIG rating. COMMERCIAL PAPER (CP) RATINGS P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short- term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well established industries, high rates of return on funds employed, conservative capitalization structure with moderate reliance on debt and ample asset protection, broad margins in earning coverage of fixed financial charges and high internal cash generation, well-established access to a range of financial markets and assured sources of alternate liquidity P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short- term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. LONG-TERM DEBT RATINGS AAA Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes is can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in AAA securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. NR Indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P or Moody's with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated A-1 or P-1. NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated "AAA" by S&P or "Aaa" by Moody's. NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated "AA" by S&P or "Aa" by Moody's. NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated "A" by S&P or Moody's. Cussip 314229691 -----END PRIVACY-ENHANCED MESSAGE-----