FEDERATED INTERMEDIATE MUNICIPAL TRUST
(A PORTFOLIO OF INTERMEDIATE MUNICIPAL TRUST)
PROSPECTUS
The shares of Federated Intermediate Municipal Trust (the "Fund") offered by
this prospectus represent interests in a diversified portfolio of securities
of Intermediate Municipal Trust (the "Trust"), an open-end management
investment company (a mutual fund).
The objective of the Fund is to provide current income exempt from federal
regular income tax. The Fund pursues this investment objective by investing
in a portfolio of municipal securities with a dollar-weighted average
portfolio maturity of not less than three or more than ten years.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT 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 the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated July 31,
1996, 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 1-800-341-7400. To
obtain other information or to make inquiries about the Fund, contact the
Fund at the address listed in the back of this prospectus. The Statement of
Additional Information, material incorporated by reference into this
document, and other information regarding the Fund is maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION 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 July 31, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Municipal Securities 5
Investment Risks 6
Investment Limitations 6
INTERMEDIATE MUNICIPAL TRUST INFORMATION 6
Management of the Trust 6
Distribution of Fund Shares 7
Administration of the Fund 8
NET ASSET VALUE 8
INVESTING IN THE FUND 9
Share Purchases 9
Minimum Investment Required 9
What Shares Cost 9
Exchanging Securities for Fund Shares 10
Certificates and Confirmations 10
Dividends 10
Capital Gains 10
REDEEMING SHARES 10
Accounts with Low Balances 11
SHAREHOLDER INFORMATION 11
Voting Rights 11
TAX INFORMATION 12
Federal Income Tax 12
State and Local Taxes 12
PERFORMANCE INFORMATION 13
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SERVICE SHARES 14
FINANCIAL STATEMENTS 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 32
ADDRESSES 33
</TABLE>
SUMMARY OF FUND EXPENSES
<TABLE>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
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
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver)(1) 0.36%
12b-1 Fee None
Total Other Expenses 0.21%
Shareholder Services Fee (after waiver)(2) 0.06%
Total Operating Expenses(3) 0.57%
</TABLE>
(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 in the table above are based on expenses
expected during the fiscal year ending May 31, 1997. The total operating
expenses were 0.57% for the fiscal year ended May 31, 1996 and would have
been 0.81% absent the voluntary waivers of portions of the management fee
and the shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs
and expenses, see "Investing in the Fund" and "Intermediate Municipal Trust
Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
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
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FEDERATED INTERMEDIATE MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS*
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 32.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING
OF PERIOD $10.55 $10.52 $10.74 $10.31 $10.09 $ 9.84 $ 9.81 $ 9.81 $ 9.83 $ 9.97
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.53 0.54 0.52 0.56 0.59 0.63 0.64 0.64 0.62 0.58
Net realized and
unrealized
gain (loss on
investments) (0.14) 0.03 (0.22) 0.43 0.22 0.25 0.03 -- (0.02) (0.14)
TOTAL FROM
INVESTMENT
OPERATIONS 0.39 0.57 0.30 0.99 0.81 0.88 0.67 0.64 0.60 0.44
LESS DISTRIBUTIONS
Distributions
from net
investment
income (0.53) (0.54) (0.52) (0.56) (0.59) (0.63) (0.64) (0.64) (0.62) (0.58)
NET ASSET VALUE,
END OF
PERIOD $10.41 $10.55 $10.52 $10.74 $10.31 $10.09 $ 9.84 $ 9.81 $ 9.81 $ 9.83
TOTAL RETURN(A) 3.78% 5.67% 2.79% 9.80% 8.19% 9.22% 7.02% 6.77% 6.34% 4.25%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.57% 0.59% 0.61% 0.48% 0.47% 0.49% 0.50% 0.48% 0.49% 0.47%
Net investment
income 5.05 5.23% 4.82% 5.27% 5.73% 6.32% 6.49% 6.56% 6.25% 5.63%
Expense waiver/
reimbursement(b) 0.24% 0.00% 0.01% 0.14% 0.22% 0.30% 0.38% 0.39% 0.31% 0.27%
SUPPLEMENTAL DATA
Net assets, end
of period
(000 omitted) $218,398 $229,285 $302,663 $263,283 $173,702 $116,577 $95,738 $82,211 $91,195 $120,162
Portfolio
turnover 19% 11% 7% 3% 9% 43% 14% 25% 119% 81%
</TABLE>
* During the period from September 6, 1993, to December 21, 1994, the Fund
offered two classes of shares, Institutional Shares and Institutional
Service Shares. As of December 21, 1994, Institutional Service Shares ceased
operations and the class designation for Institutional Shares was
eliminated. The table above does not reflect Institutional Service Shares.
See page 14 for Institutional Service Shares Financial Highlights.
(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)
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended May 31, 1996, which can be obtained
free of charge.
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated May 31, 1985. The Declaration of Trust permits
the Trust to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities. The shares in
any one portfolio may be offered in separate classes.
Shares of the Fund are sold primarily to retail and private banking
customers of financial institutions and to accounts for which financial
institutions act in a fiduciary, advisory, agency, custodial, or similar
capacity as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio of municipal securities.
Shares are also designed for funds held by savings and other institutions,
corporations, trusts, brokers, investment counselors and insurance
companies. A minimum initial investment of $25,000 over a 90-day period is
required. The Fund may not be a suitable investment for retirement plans
since it invests in municipal securities.
Shares are currently sold and redeemed at net asset value without a sales
charge imposed by the Fund.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt
from federal regular income tax. Interest income of the Fund that is exempt
from federal income tax retains its tax-free status when distributed to the
Fund's shareholders. The Fund pursues this investment objective by investing
at least 80% of its net assets in a diversified portfolio of municipal
securities with a dollar-weighted average portfolio maturity of not less
than three or more than ten years. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by following
the investment policies described in this prospectus. The investment
objective and the policy stated above cannot be changed without approval of
shareholders.
INVESTMENT POLICIES
The investment policies described below may be changed by the Board of
Trustees (the "Trustees") without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The municipal securities in which the Fund invests
are:
* debt obligations, including industrial development bonds, issued by or
on behalf of any state, territory, or possession of the United States,
including the District of Columbia, or any political subdivision of any
of these; and
* participation interests, as described below, in any of the above
obligations, the interest from which is, in the opinion of bond counsel
for the issuers or in the opinion of officers of the Fund and/or the
investment adviser to the Fund, exempt from federal regular income tax.
The prices of fixed income securities fluctuate inversely to the direction
of interest rates.
AVERAGE MATURITY. The dollar-weighted average portfolio maturity of the
Fund's portfolio of municipal securities will not be less than three years
or more than ten years. For purposes of determining the dollar-weighted
average portfolio maturity of the Fund's portfolio, the maturity of a
municipal security will be its ultimate maturity, unless it is probable that
the issuer of the security will take advantage of maturity-shortening
devices such as a call, refunding, or redemption provision, in which case
the maturity date will be the date on which it is probable that the security
will be called, refunded, or redeemed. If the municipal security includes
the right to demand payment, the maturity of the security for purposes of
determining the Fund's dollar-weighted average portfolio maturity will be
the period remaining until the principal amount of the security can be
recovered by exercising the right to demand payment.
CHARACTERISTICS. The municipal securities in which the Fund invests are:
* rated within the three highest ratings for municipal securities by
Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, or A) or by
Standard & Poor's Ratings Group ("S&P") (AAA, AA, or A);
* guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest;
* fully collateralized by an escrow of U.S. government securities
or other securities acceptable to the Fund's adviser;
* rated at the time of purchase within Moody's highest short-term municipal
obligation rating (MIG1/VMIG1) or Moody's highest municipal commercial
paper rating (PRIME-1) or S&P's highest municipal commercial paper
rating (SP-1);
* unrated if, at the time of purchase, other municipal securities of that
issuer are rated A or better by Moody's or S&P; or
* unrated if determined to be of equivalent quality to one of the foregoing
rating categories by the Fund's investment adviser.
A description of the rating categories is contained in the Appendix to the
Statement of Additional Information.
PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings associations, and
insurance companies. These participation interests give the Fund an
undivided interest in one or more underlying municipal securities. The
financial institutions from which the Fund purchases participation interests
frequently provide or obtain irrevocable letters of credit or guarantees to
attempt to assure that the participation interests are of high quality. The
Trustees of the Fund will determine whether participation interests meet the
prescribed quality standards for the Fund.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the municipal securities which
the Fund purchases may have variable interest rates. Variable interest rates
are ordinarily stated as a percentage of a published interest rate, interest
rate index, or some similar standard, such as the 91-day U.S. Treasury bill
rate. Variable interest rates are adjusted on a periodic basis, e.g., every
30 days. The Fund will consider this adjustment period to be the maturity of
the security for purposes of determining the weighted average maturity of
the portfolio.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase and
sell municipal 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.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term temporary investments
which may or may not be exempt from federal income tax. Temporary
investments include: tax-exempt variable and floating rate demand notes;
tax-free commercial paper; other temporary municipal securities; obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities; other debt securities; commercial paper; certificates of
deposit of domestic branches of U.S. banks; and repurchase agreements
(arrangements in which the organization selling the Fund a security agrees
at the time of sale to repurchase it at a mutually agreed upon time and
price).
There are no rating requirements applicable to temporary investments with
the exception of temporary municipal securities which are subject to the
same rating requirements as all other municipal securities in which the Fund
invests. However, the investment adviser will limit temporary investments to
those it considers to be of comparable quality to the acceptable investments
of the Fund.
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention of generating income subject to federal regular
income tax.
MUNICIPAL SECURITIES
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.
Municipal securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue
bonds, however, are payable only from the revenue generated by the facility
financed by the bond or other specified sources of revenue. Revenue bonds do
not represent a pledge of credit or create any debt of or charge against the
general revenues of a municipality or public authority. Industrial
development bonds are typically classified as revenue bonds.
INVESTMENT RISKS
Yields on municipal securities depend on a variety of factors, including:
the general conditions of the 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 municipal securities and participation interests, or the
guarantors of either, to meet their obligations for the payment of interest
and principal when due.
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 those assets to secure such borrowings;
* invest more than 5% of its total assets in purchases of industrial
development bonds, the principal and interest of which are paid by a
company which has an operating history of less than three years; or
* with respect to securities comprising 75% of its assets, invest more than
5% of its total assets in securities of one issuer (except cash and cash
items, and U.S. government obligations).
The above investment limitations cannot be changed without shareholder
approval. The following limitation, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in this limitation becomes effective.
The Fund will not:
* invest more than 15% of its net assets in securities which are illiquid,
including repurchase agreements providing for settlement in more than
seven days after notice, and restricted securities determined by the
Trustees to be illiquid.
INTERMEDIATE MUNICIPAL TRUST INFORMATION
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising
all the Trust's powers except those reserved for the shareholders. The
Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. 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, for which it receives an annual fee from the Fund.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .40% 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. Also, the
adviser may voluntarily choose to waive a portion of its fee or reimburse
other expenses of the Fund, but reserves the right to terminate such waiver
or reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940, as amended. It is a subsidiary of Federated
Investors. All of the Class A (voting) shares of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, Chairman and
Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son,
J. Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees and could result in severe penalties.
PORTFOLIO MANAGER'S BACKGROUND. Jonathan C. Conley has been the Fund's
portfolio manager since the Fund's inception. Mr. Conley joined Federated
Investors in 1979 and has been a Senior Vice President of the Fund's
investment adviser since 1995. Mr. Conley was a Vice President of the Fund's
investment adviser from 1982 to 1995. Mr. Conley is a Chartered Financial
Analyst and received his M.B.A. in Finance from the University of Virginia.
J. Scott Albrecht has been the Fund's co-portfolio manager since July 1995.
Mr. Albrecht joined Federated Investors in 1989 and has been a Vice
President of the Fund's investment adviser since 1994. From 1992 to 1994,
Mr. Albrecht served as an Assistant Vice President of the Fund's investment
adviser. In 1991, Mr. Albrecht acted as an investment analyst. Mr. Albrecht
is a Chartered Financial Analyst and received his M.S. in Public Management
from Carnegie Mellon University.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund. Federated Services Company provides these at an annual
rate which relates to the average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
<C> <C>
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to .25% of the average
daily net asset value of the Fund shares, computed at an annual rate, to
obtain certain personal services for shareholders and to maintain
shareholder accounts. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily. Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions
to perform shareholder services. Financial institutions will receive fees
based upon shares owned by their clients or customers. The schedules of such
fees and the basis upon which such fees will be paid will be determined from
time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Shareholder Services Agreement, Federated Securities
Corp. and Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder
services. The support may include sponsoring sales, educational and training
seminars for their employees, providing sales literature, and engineering
computer software programs that emphasize the attributes of the Fund. Such
assistance 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.
NET ASSET VALUE
The Fund's net asset value per share fluctuates. It is determined by
dividing the sum of all securities and other assets, less liabilities, by
the number of shares outstanding.
INVESTING IN THE FUND
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or mail.
To purchase shares, open an account by calling Federated Securities Corp.
and obtain a master account number. Information needed to establish the
account will be taken over the telephone. The Fund reserves the right to
reject any purchase request.
BY WIRE. To purchase shares by Federal Reserve wire, call the Fund before
1:00 p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m.
(Eastern time) that day. Federal funds should be wired as follows: Federated
Shareholder Services Company, c/o State Street Bank and Trust Company,
Boston, Massachusetts; Attention: EDGEWIRE; For Credit to: Federated
Intermediate Municipal Trust; Fund Number (this number can be found on the
account statement or by contacting the Fund); Group Number or Wire Order
Number; Nominee or Institution Name; and ABA 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.
BY MAIL. To purchase shares by mail, send a check made payable to Federated
Intermediate Municipal Trust to: Federated Shareholder Services Company,
P.O. Box 8600, Boston, Massachusetts 02266-8600. Orders by mail are
considered received when payment by check is converted by State Street Bank
and Trust Company ("State Street Bank") into federal funds. This is normally
the next business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $25,000, plus any financial
intermediary fee, if applicable. However, an account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days. The
minimum investment for an institutional investor will be calculated by
combining all accounts it maintains with the Fund. Accounts established
through a financial intermediary may be subject to a smaller minimum
investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who
purchase shares through a financial intermediary may be charged a service
fee by that financial intermediary.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value
of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; or (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain municipal securities or a combination of
securities and cash for Fund shares. The securities and any cash must have a
market value of at least $25,000. The Fund reserves the right to determine
the acceptability of securities to be exchanged. Securities accepted by the
Fund are valued in the same manner as the Fund values its assets.
Shareholders wishing to exchange securities should first contact Federated
Securities Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder Services Company
maintains a share account for each shareholder of record. Share certificates
are not issued unless requested by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during
the month.
DIVIDENDS
Dividends are declared daily and paid monthly to all shareholders invested
in the Fund on the record date. Dividends are declared just prior to
determining net asset value. Shares purchased by wire begin earning
dividends on the business day after the order is received. Shares purchased
by check begin earning dividends on the business day after the check is
converted, upon instruction of the transfer agent, into federal funds.
Dividends are automatically reinvested on payment dates at the ex-dividend
date net asset value in additional shares of the Fund unless cash payments
are requested by contacting the Fund.
CAPITAL GAINS
Distributions of net realized long-term capital gains realized by the Fund,
if any, will be made at least once every twelve months.
REDEEMING SHARES
The Fund redeems shares at their net asset value next determined after the
Fund receives the redemption request. Redemptions will be made on days on
which the Fund computes its net asset value. Investors who redeem shares
through a financial intermediary may be charged a service fee by that
financial intermediary. Redemption requests must be received in proper form
and can be made by telephone request or by written request.
BY TELEPHONE. Shareholders may redeem their shares by telephoning the Fund
before 4:00 p.m. (Eastern time). The proceeds will normally be wired the
following business day, but in no event more than seven days, to the
shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. 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. If
at any time, the Fund shall determine it necessary to terminate or modify
this method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. It is recommended that investors request this privilege
at the time of their initial application. If not completed at the time of
initial application, authorization forms and information on this service can
be obtained through Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by
the Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should
occur, another method of redemption, such as "By Mail," should be
considered.
BY MAIL. Shares may be redeemed in any amount by mailing a written request
to: Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 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: Federated Intermediate Municipal Trust;
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.
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 of
record if the account balance falls below a required minimum value of
$25,000 due to shareholder redemptions. This requirement does not apply,
however, if the balance falls below $25,000 because of changes in the Fund's
net asset value. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of each
portfolio in the Trust have equal voting rights except that, in matters
affecting only a particular Fund, only shares of that Fund are entitled to
vote. As a Massachusetts business trust, the Trust is not required to hold
annual shareholder meetings. Shareholder approval will be sought only for
certain changes in the Trust's or the Fund's operation and for the election
of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting of the Trust shall be called by the Trustees upon
the written request of shareholders owning at least 10% of the outstanding
shares of the Trust entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code of 1986, as amended (the "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, dividends representing net interest earned on some
municipal bonds are included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations.
The alternative minimum tax, up to 28% of alternative minimum taxable income
for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is
equal to the regular taxable income of the taxpayer increased by certain
"tax preference" items not included in regular taxable income and reduced by
only a portion of the deductions allowed in the calculation of the regular
tax.
Interest on certain "private activity" bonds issued after August 7, 1986, is
treated as a tax preference item for both individuals and corporations.
Unlike traditional governmental purpose municipal bonds, which finance
roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase
all types of municipal bonds, including private activity bonds. Thus, while
the Fund has no present intention of purchasing any private activity bonds,
should it purchase any such bonds, a portion of the Fund's dividends may be
treated as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund
which represent interest on municipal bonds may be subject to the 20%
corporate alternative minimum tax because the dividends are included in a
corporation's "adjusted current earnings." The corporate alternative minimum
tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current
earnings" over the taxpayer's alternative minimum taxable income as a tax
preference item. "Adjusted current earnings" is based upon the concept of a
corporation's "earnings and profits." Since "earnings and profits" generally
includes the full amount of any Fund dividend, and alternative minimum
taxable income does not include the portion of the Fund's dividend
attributable to municipal bonds which are not private activity bonds, the
difference will be included in the calculation of the corporation's
alternative minimum tax.
Dividends of the Fund representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and
distributions is provided annually.
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.
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return, yield, and
tax-equivalent yield.
Total return represents the change, over a specific period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the maximum offering price per share of
the Fund on the last day of the period. This number is then annualized using
semi-annual compounding. 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
specific tax rate. The yield and the tax-equivalent yield do not necessarily
reflect income actually earned by the Fund and, therefore, may not correlate
to the dividends or other distributions paid to shareholders.
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.
FEDERATED INTERMEDIATE MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES*
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 32.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1995(A) 1994(B)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.52 $11.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.28 0.36
Net realized and unrealized gain (loss) on investments (0.44) (0.48)
Total from investment operations (0.16) (0.12)
LESS DISTRIBUTIONS
Distributions from net investment income (0.28) (0.36)
NET ASSET VALUE, END OF PERIOD $10.08 $10.52
TOTAL RETURN(C) (1.53%) (1.10%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.84%(d) 0.89%(d)
Net investment income 4.88%(d) 4.66%(d)
Expense waiver/reimbursement(e) 0.14%(d) 0.14%(d)
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $0 $1,715
Portfolio turnover 11% 7%
</TABLE>
* As of December 21, 1994, Institutional Service Shares were no longer
offered and ceased to exist. Prior to that date, the Fund had offered two
classes of shares, known as Institutional Shares and Institutional Service
Shares.
(a) Reflects operations for the period from June 1, 1994 to December 21,
1994 (date Institutional Service Shares ceased operations).
(b) Reflects operations for the period from September 6, 1993 (date of
initial public offering) to May 31, 1994.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) Computed on an annualized basis.
(e) 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)
FEDERATED INTERMEDIATE MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS
MAY 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES -- 98.2%
ALABAMA -- 0.7%
$ 1,500,000 Alabama Water PCA, PCR Bonds, 6.35% (AMBAC
INS), 8/15/2001 Aaa $ 1,608,330
ARIZONA -- 4.1%
1,000,000 Arizona State Transportation Board, Excise Tax
Revenue Bonds (Series B), 5.50% (Maricopa County,
AZ Regional Area Roads)/(AMBAC INS)/(Original
Issue Yield: 5.60%), 7/1/2002 Aaa 1,035,180
1,000,000 Mesa, AZ, UT GO Bonds, 7.125% (United States
Treasury PRF), 7/1/1999 (@102) AA- 1,022,770
1,500,000 Phoenix, AZ, UT GO Refunding Bonds (Series A),
7.40%, 7/1/2000 AA 1,652,610
5,000,000 Salt River Project, AZ Agricultural Improvement &
Power District, Electric System Revenue Bonds
(Series A), 7.10%, 1/1/2000 AA 5,284,750
Total 8,995,310
CALIFORNIA -- 4.2%
2,250,000 California State, UT GO Bonds, (Series AV),
7.80%, 10/1/2000 AA 2,526,457
1,800,000 Los Angeles, CA Department of Water & Power,
Electric Plant Revenue Bonds, 2nd Issue, 9.00%,
6/1/2000 AA 2,081,034
1,875,000 Los Angeles, CA Department of Water & Power,
Electric Plant Revenue Bonds, 2nd Issue, 9.00%,
6/1/2001 AA 2,223,694
2,000,000 Los Angeles, CA Department of Water & Power,
Electric Plant Revenue Refunding Bonds, 9.00%,
2/1/2001 AA 2,349,540
Total 9,180,725
</TABLE>
FEDERATED INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES -- CONTINUED
FLORIDA -- 2.9%
$ 2,000,000 Florida State Board of Education Administration,
UT GO Capital Outlay Bonds (Series C), 6.25%
(Florida State), 6/1/2001 AA $ 2,135,340
3,000,000 Florida State Board of Education Administration,
UT GO Capital Outlay Bonds, 6.00% (Florida State),
6/1/2001 AA 3,169,950
1,000,000 Miami Beach, FL Health Facilities Authority, Hospital
Revenue Refunding Bonds, 5.60% (Mt. Sinai Medical
Center, FL)/(FSA INS)/(Original Issue Yield: 5.65%),
11/15/2002 AAA 1,044,220
Total 6,349,510
GEORGIA -- 4.0%
2,000,000 Georgia Municipal Electric Authority, Revenue Bonds
(Series U), 6.50%, 1/1/2000 AA- 2,117,700
1,000,000 Georgia Municipal Electric Authority, Revenue Bonds
(Series U), 6.60%, 1/1/2001 AA- 1,073,090
5,000,000 Georgia State, UT GO Bonds (Series A), 7.70%, 2/1/2001 Aaa 5,624,900
Total 8,815,690
HAWAII -- 5.5%
5,000,000 Hawaii State, UT GO Bonds (Series BT), 8.00%,
2/1/2001 AA 5,660,250
1,000,000 Hawaii State, UT GO Bonds (Series BU), 5.85%
(Original Issue Yield: 5.95%), 11/1/2001 AA 1,052,190
2,000,000 Hawaii State, UT GO Bonds (Series BZ), 6.25%,
10/1/2002 AA 2,151,520
3,000,000 Honolulu, HI City & County, UT GO Bonds (Series A),
6.30% (Original Issue Yield: 6.40%), 8/1/2001 Aaa 3,205,650
Total 12,069,610
ILLINOIS -- 3.9%
3,000,000 Du Page, IL Water Commission, UT GO Bonds, 6.05%,
3/1/2002 Aaa 3,176,190
</TABLE>
FEDERATED INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES -- CONTINUED
ILLINOIS -- CONTINUED
$ 3,000,000 Illinois Municipal Electric Agency, Power Supply
System Revenue Bonds (Series A), 6.20% (AMBAC INS),
2/1/2001 Aaa $ 3,168,360
2,000,000 University of Illinois, Auxiliary Facilities Revenue
Bonds, 6.40% (Original Issue Yield: 6.45%), 4/1/2001 AA 2,139,520
Total 8,484,070
MARYLAND -- 0.5%
1,000,000 University of Maryland, Auxiliary Facility & Tuition
Revenue Bonds (Series A), 5.80% (Original Issue Yield:
5.85%), 2/1/2002 AA+ 1,048,270
MICHIGAN -- 6.9%
3,500,000 Detroit, MI City School District, UT GO Refunding
Bonds, 4.85% (Michigan State GTD)/(Original Issue
Yield: 4.95%), 5/1/2004 AA 3,398,875
1,250,000 Jackson County, MI Hospital Finance Authority,
Hospital Revenue Refunding Bonds (Series A), 4.80%
(W.A. Foote Memorial Hospital, MI)/(FGIC INS)/
(Original Issue Yield: 4.90%), 6/1/2005 Aaa 1,208,938
2,000,000 Michigan State Building Authority, Revenue Bonds
(Series II), 6.25% (AMBAC INS)/(Original Issue Yield:
6.35%), 10/1/2000 Aaa 2,122,920
3,705,000 Michigan State Housing Development Authority,
(Series B) Rental Housing Revenue Bonds, 5.65%
(MBIA INS), 10/1/2007 Aaa 3,679,917
3,605,000 Michigan State Housing Development Authority,
(Series B) Rental Housing Revenue Bonds, 5.65%
(MBIA INS), 4/1/2007 Aaa 3,581,351
1,000,000 Royal Oak, MI Hospital Finance Authority, Revenue
Refunding Bonds, 7.40% (William Beaumont Hospital,
MI), 1/1/2000 AA 1,052,310
Total 15,044,311
</TABLE>
FEDERATED INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES -- CONTINUED
MISSOURI -- 4.8%
$ 5,000,000 Missouri State HEFA, Health Facilities Revenue Bonds
(Series A), 6.00% (BJC Health System, MO)/(Original
Issue Yield: 6.05%), 5/15/2005 AA $ 5,272,350
5,000,000 Missouri State HEFA, Health Facilities Revenue Bonds
(Series A), 6.10% (BJC Health System, MO)/(Original
Issue Yield: 6.15%), 5/15/2006 AA 5,215,800
Total 10,488,150
NEVADA -- 0.5%
1,000,000 Clark County, NV School District, LT GO Bonds
(Series A), 9.75% (MBIA INS), 6/1/2000 Aaa 1,181,010
NEW HAMPSHIRE -- 1.3%
2,555,000 New Hampshire State, UT GO Bonds (Series A), 6.40%,
6/15/2001 Aa1 2,746,497
NEW YORK -- 6.5%
1,500,000 Municipal Assistance Corp. of New York, Revenue
Bonds (Series 62), 6.60%, 7/1/2000 AA- 1,568,970
2,000,000 Municipal Assistance Corp. of New York, Revenue
Bonds (Series 66), 7.00% (Original Issue Yield: 7.05%),
7/1/1997 AA- 2,069,260
2,500,000 New York State Environmental Facilities Corp., State
Water Pollution Control Bonds (Series 1994E), 6.15%
(Original Issue Yield: 6.25%), 6/15/2004 Aa 2,682,350
2,550,000 New York State Power Authority, Revenue & General
Purpose Bonds (Series BB), 5.90% (Original Issue Yield:
5.95%), 1/1/2002 AA 2,680,101
4,000,000 New York State Thruway Authority, Highway & Bridge
Fund Revenue Bonds (Series B), 5.625% (FGIC INS)/
(Original Issue Yield: 5.75%), 4/1/2005 Aaa 4,131,760
1,000,000 Triborough Bridge & Tunnel Authority, NY, Revenue
Bonds (Series S), 6.625% (Original Issue Yield: 6.70%),
1/1/2001 Aa 1,077,860
Total 14,210,301
</TABLE>
FEDERATED INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES -- CONTINUED
NORTH CAROLINA -- 5.2%
$ 3,355,000 Charlotte-Mecklenburg Hospital Authority, NC, Health
Care System Revenue Bonds, 5.90% (Original Issue
Yield: 5.95%), 1/1/2002 AA $ 3,483,832
5,350,000 North Carolina Municipal Power Agency No. 1,
Catawba Electric Revenue Refunding Bonds, 6.00%
(Original Issue Yield: 6.05%), 1/1/2004 A 5,520,451
2,000,000 North Carolina Municipal Power Agency No. 1,
Catawba Electric Revenue Refunding Bonds, 7.25%,
1/1/2007 A 2,243,680
Total 11,247,963
OHIO -- 3.1%
2,615,000 Franklin County, OH Hospital Facility Authority,
Refunding Revenue Bonds, 5.25% (Holy Cross Health
System Corp.)/(MBIA Insurance Corporation INS)/
(Original Issue Yield: 5.60%), 6/1/2008 Aaa 2,563,746
2,500,000 Hamilton County, OH Sewer System, Improvement &
Revenue Refunding Bonds (Series A), 6.20%, 12/1/2000 AA- 2,648,950
1,400,000 Montgomery County, OH Health Facilities Authority,
Revenue Bonds (Series A), 6.20% (Sisters of Charity
Health Care System)/(MBIA INS)/(Original Issue
Yield: 6.30%), 5/15/2001 Aaa 1,488,340
Total $ 6,701,036
OKLAHOMA -- 1.9%
2,000,000 Oklahoma State Industrial Authority, Health System
Revenue Bonds (Series C), 5.70% (Baptist Medical
Center, OK)/(AMBAC INS)/(Original Issue Yield:
5.80%), 8/15/2002 Aaa 2,073,740
2,100,000 Tulsa's Port of Catoosa, OK Facilities Authority, (Series
1995) Industrial Development Refunding Revenue
Bonds, 5.35% (Cargill, Inc.), 9/1/2006 Aa3 2,076,837
Total 4,150,577
</TABLE>
FEDERATED INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES -- CONTINUED
PENNSYLVANIA -- 11.9%
$ 1,500,000 Allegheny County, PA HDA, Revenue Bonds, 6.875%
(Mercy Health Systems)/(MBIA Insurance Corporation
INS)/(Original Issue Yield: 7.00%), 10/1/1999 Aaa $ 1,542,930
1,000,000 Allegheny County, PA HDA, Revenue Refunding Bonds
(Series B), 5.50% (Presbyterian University Hospital)/
(MBIA INS)/(Original Issue Yield: 5.60%), 11/1/2002 Aaa 1,030,430
5,000,000 (b)Commonwealth of Pennsylvania, UT GO Refunding
Bonds, 5.375% (FGIC INS), 11/15/2007 Aaa 5,025,350
5,000,000 (b)Commonwealth of Pennsylvania, UT GO Refunding
Bonds, 5.375% (FGIC INS), 11/15/2008 Aaa 4,981,900
1,500,000 Pennsylvania Infrastructure Investment Authority,
Revenue Bonds, 6.15% (Pennvest), 9/1/2001 AA 1,590,000
3,500,000 Pennsylvania Intergovernmental Coop Authority,
Special Tax Revenue Bonds, 5.45% (FGIC INS)/(Original
Issue Yield: 5.55%), 6/15/2008 Aaa 3,464,615
1,500,000 Pennsylvania Intergovernmental Coop Authority,
Special Tax Revenue Refunding Bonds, Philadelphia
Funding Program, 5.20% (FGIC INS)/(Original Issue
Yield: 5.32%), 6/15/2007 Aaa 1,470,015
3,880,000 (b)Pennsylvania Intergovernmental Coop Authority,
Special Tax Revenue Refunding Bonds, Philadelphia
Funding Program, 5.30% (FGIC INS)/(Original Issue
Yield: 5.42%), 6/15/2008 Aaa 3,799,218
3,000,000 Pennsylvania State Higher Education Facilities
Authority, Health Services Revenue Bonds (Series A),
5.50% (Allegheny Delaware Valley Obligated Group)/
(MBIA INS)/(Original Issue Yield: 99.108%), 11/15/2008 Aaa 3,001,260
Total 25,905,718
SOUTH CAROLINA -- 2.4%
730,000 Columbia, SC Waterworks & Sewer System, Refunding
Revenue Bonds, 6.40% (United States Treasury COL)/
(Original Issue Yield: 6.45%), 2/1/2001 Aaa 779,983
</TABLE>
FEDERATED INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES -- CONTINUED
SOUTH CAROLINA -- CONTINUED
$ 4,270,000 Columbia, SC Waterworks & Sewer System, Revenue
Bonds, 6.40% (Original Issue Yield: 6.45%), 2/1/2001 AA $ 4,559,421
Total 5,339,404
TENNESSEE -- 1.9%
3,000,000 Memphis, TN Electric System, Revenue Refunding
Bonds, 5.625% (Original Issue Yield: 5.775%), 1/1/2002 AA 3,113,130
1,065,000 Metropolitan Government Nashville & Davidson
County, TN HEFA, Revenue Bonds (Series B), 5.85%
(Vanderbilt University)/(Original Issue Yield: 5.90%),
10/1/2001 AA 1,118,783
Total 4,231,913
TEXAS -- 19.9%
1,755,000 Dallas, TX Waterworks & Sewer System, Revenue
Refunding & Improvement Bonds, 6.60% (United States
Treasury PRF), 4/1/2000 (@101.5) AA 1,822,164
1,000,000 Dallas, TX Waterworks & Sewer System, Revenue
Refunding and Improvement Bonds (Series A), 9.50%,
10/1/1998 AA 1,033,760
4,000,000 Garland, TX, LT GO Bonds, 5.80% (Original Issue Yield:
5.90%), 8/15/2001 AA 4,199,840
4,500,000 Houston, TX Independent School District, LT GO Bonds,
8.375% (PSFG GTD), 8/15/2000 Aaa 5,121,360
1,650,000 San Antonio, TX Electric & Gas, Revenue Bonds, 9.90%,
2/1/1998 AA 1,799,655
2,000,000 San Antonio, TX Electric & Gas, Revenue Refunding
Bonds (Series A), 7.00%, 2/1/1999 AA 2,126,480
2,500,000 San Antonio, TX Water Authority, Revenue Refunding
Bonds, 6.00% (FGIC INS)/(Original Issue Yield: 6.15%),
5/15/2001 Aaa 2,635,925
1,475,000 San Antonio, TX, UT GO General Improvement Bonds,
8.625%, 8/1/2000 AA 1,690,704
</TABLE>
FEDERATED INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES -- CONTINUED
TEXAS -- CONTINUED
$ 6,370,000 Socorro, TX Independent School District, UT GO
Refunding Bonds (Series A), 6.25% (PSFG GTD)/
(Original Issue Yield: 6.30%), 8/15/2001 Aaa $ 6,785,897
3,000,000 Texas State Public Property Finance Corp., Revenue
Refunding Bonds, 5.10% (Mental Health & Retardation,
TX)/(FSA INS), 9/1/2003 Aaa 2,997,960
7,000,000 Texas State, Public Finance Authority Refunding UT GO
Bonds (Series B) , 5.30% (Original Issue Yield: 5.45%),
10/1/2007 AA 6,994,120
6,000,000 Texas Water Development Board, State Revolving Fund
Sr. Lien Revenue Bonds, 5.80% (Original Issue Yield:
5.90%), 7/15/2002 AA 6,296,820
Total 43,504,685
UTAH -- 1.0%
2,000,000 Intermountain Power Agency, UT, Power Supply
Revenue Refunding Bonds (Series B), 7.20%, 7/1/1999 AA 2,139,360
VIRGINIA -- 2.9%
2,025,000 Newport News, VA, UT GO Refunding Improvement
Bonds (Series B), 5.40% (Original Issue Yield: 5.50%),
7/1/2002 AA- 2,072,183
1,995,000 Virginia Beach, VA, UT GO Bonds (Series A), 6.30%,
3/1/2000 AA 2,110,630
1,995,000 Virginia Beach, VA, UT GO Bonds (Series A), 6.30%,
3/1/2001 AA 2,129,563
Total 6,312,376
WASHINGTON -- 2.2%
1,020,000 Seattle, WA, LT GO Refunding Bonds, 6.00% (Original
Issue Yield: 6.10%), 3/1/2002 AA+ 1,076,324
1,500,000 Tacoma, WA Sewer Authority, Revenue Refunding
Bonds (Series B), 5.70% (FGIC INS)/(Original Issue
Yield: 5.85%), 12/1/2005 Aaa 1,559,655
</TABLE>
FEDERATED INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES -- CONTINUED
WASHINGTON -- CONTINUED
$ 2,000,000 Washington State, UT GO Motor Vehicle Fuel Tax
Refunding Bonds, 5.60% (Original Issue Yield: 5.70%),
9/1/2001 AA $ 2,074,720
Total 4,710,699
TOTAL INTERMEDIATE-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $206,520,097) $ 214,465,515
SHORT-TERM MUNICIPAL SECURITIES -- 1.3%
PUERTO RICO -- 0.8%
1,700,000 Puerto Rico Government Development Bank Weekly
VRDNs (Credit Suisse, Zurich LOC) AA+ 1,700,000
TEXAS -- 0.5%
1,200,000 Harris County, TX HFDC, (Series B) Daily VRDNs
(St. Luke's Episcopal Hospital) A-1+ 1,200,000
TOTAL SHORT-TERM MUNICIPAL SECURITIES (AT
AMORTIZED COST) 2,900,000
TOTAL INVESTMENTS (IDENTIFIED COST $209,420,097)(A) $ 217,365,515
</TABLE>
(a) The cost of investments for federal tax purposes amounts to
$209,420,097. The net unrealized appreciation/depreciation of
investments on a federal tax basis amounts to $7,945,418 which
is comprised of $8,234,780 appreciation and $289,362 depreciation
at May 31, 1996.
(b) Denotes delayed delivery security.
* 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
($218,397,526) at May 31, 1996.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
COL -- Collateralized
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GO -- General Obligation
GTD -- Guaranty
HDA -- Hospital Development Authority
HEFA -- Health and Education Facilities Authority
HFDC -- Health Facility Development Corporation
INS -- Insured
LOC -- Letter of Credit
LT -- Limited Tax
MBIA -- Municipal Bond Investors Assurance
PCA -- Pollution Control Authority
PCR -- Pollution Control Revenue
PRF -- Prerefunded
PSFG -- Permanent School Fund Guaranty
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERMEDIATE MUNICIPAL TRUST
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $209,420,097) $ 217,365,515
Income receivable 3,888,555
Receivable for investments sold 10,828,588
Receivable for shares sold 855,175
Total assets 232,937,833
LIABILITIES:
Payable for investments purchased $ 13,036,434
Payable for shares redeemed 98,112
Income distribution payable 723,778
Payable to Bank 656,631
Accrued expenses 29,002
Total liabilities 14,543,957
NET ASSETS for 20,970,996 shares outstanding $ 218,393,876
NET ASSETS CONSIST OF:
Paid in capital $ 217,337,441
Net unrealized appreciation of investments 7,945,418
Accumulated net realized loss on investments (6,888,983)
Total Net Assets $ 218,393,876
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$218,393,876 / 20,970,996 shares outstanding $10.41
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERMEDIATE MUNICIPAL TRUST
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 12,575,244
EXPENSES:
Investment advisory fee $ 895,416
Administrative personnel and services fee 169,350
Custodian fees 24,150
Transfer and dividend disbursing agent fees and expenses 30,943
Directors'/Trustees' fees 4,948
Auditing fees 16,887
Legal fees 4,007
Portfolio accounting fees 61,047
Shareholder services fee 559,635
Share registration costs 14,375
Printing and postage 10,139
Insurance premiums 6,089
Taxes 7,685
Miscellaneous 2,858
Total expenses 1,807,529
Waivers --
Waiver of investment advisory fee $ (86,923)
Waiver of shareholder services fee (440,483)
Total waivers (527,406)
Net expenses 1,280,123
Net investment income 11,295,121
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (96,242)
Net change in unrealized appreciation of
investments (2,535,429)
Net realized and unrealized loss on investments (2,631,671)
Change in net assets resulting from operations $ 8,663,450
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERMEDIATE MUNICIPAL TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 11,295,121 $ 13,563,390
Net realized gain (loss) on investments ($3,670,810
and $2,484,394 net losses, respectively, as computed
for federal tax purposes) (96,242) (5,402,939)
Net change in unrealized appreciation (depreciation) (2,535,429) 4,350,977
Change in net assets resulting from operations 8,663,450 12,511,428
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income:
Institutional Shares (11,295,121) (13,516,478)
Institutional Service Shares -- (46,912)
Change in net assets resulting from distributions to
shareholders (11,295,121) (13,563,390)
SHARE TRANSACTIONS --
Proceeds from sale of shares 77,775,142 67,745,760
Net asset value of shares issued to shareholders in payment
of distributions declared 2,174,227 2,440,705
Cost of shares redeemed (88,208,508) (144,228,224)
Change in net assets resulting from share transactions (8,259,139) (74,041,759)
Change in net assets (10,890,810) (75,093,721)
NET ASSETS:
Beginning of period 229,284,686 304,378,407
End of period $ 218,393,876 $ 229,284,686
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERMEDIATE MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996
1. ORGANIZATION
Intermediate 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 three portfolios. The
financial statements included herein are only those of Federated
Intermediate Municipal Trust (the "Fund"), a diversified portfolio. The
financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is
limited to the portfolio in which shares are held. The investment objective
of the Fund is to provide current income exempt from federal regular income
tax.
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 -- Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk, credit
quality, coupon, maturity, type of issue, and any other factors or market
data the pricing service deems relevant. Short-term securities are valued
at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at
the time of purchase may be valued at amortized cost, which approximates
fair market value.
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.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
expiring capital loss carryforwards. The following reclassifications have
been made to the financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
ACCUMULATED
NET REALIZED
PAID-IN CAPITAL GAIN/LOSS
<C> <C>
$6,649,586 $(6,649,586)
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
FEDERATED INTERMEDIATE MUNICIPAL TRUST
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 May 31, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $6,784,222, 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:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
1997 $215,810
1998 $170,468
2001 $242,740
2003 $2,484,394
2004 $3,670,810
</TABLE>
Additionally, net capital losses of $104,832 attributable to security
transactions incurred after October 31, 1995 are treated as arising on June
1, 1996 the first day of the Fund's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
FEDERATED INTERMEDIATE MUNICIPAL TRUST
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995(a)
SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
Shares sold 7,363,145 $ 77,775,142 6,524,563 $ 67,387,240
Shares issued to shareholders in
payment of distributions declared 205,536 2,174,227 233,106 2,407,168
Shares redeemed (8,340,470) (88,208,508) (13,796,581) (142,201,578)
Net change resulting from
share transactions (771,789) $ (8,259,139) (7,038,912) $ (72,407,170)
<CAPTION>
YEAR ENDED MAY 31,
1996 1995(b)
<S> <C> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES SHARES DOLLARS SHARES DOLLARS
Shares sold -- $ -- 34,479 $ 358,520
Shares issued to shareholders in
payment of distributions declared -- -- 3,242 33,537
Shares redeemed -- -- (200,816) (2,026,646)
Net change resulting from
share transactions -- -- (163,095) (1,634,589)
Net change resulting from
Fund share transactions (771,789) $ (8,259,139) (7,202,007) $ (74,041,759)
</TABLE>
(a) Until December 21, 1994, the Fund offered two classes of shares,
Institutional Shares and Institutional Service Shares. As of December 21,
1994, Institutional Service Shares ceased operations and the class
designation for Institutional Shares was eliminated.
(b) For the period from June 1, 1994 to December 21, 1994 (date
Institutional Service Shares ceased operations).
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.40% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund shares for the period.
The fee paid to FSS is used to finance certain services for shareholders and
to maintain shareholder accounts. FSS may voluntarily choose to waive a
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
FEDERATED INTERMEDIATE MUNICIPAL TRUST
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS -- During the period ended May 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $90,950,000 and $81,150,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 42,690,788
SALES $ 48,826,730
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
INTERMEDIATE MUNICIPAL TRUST
(Federated Intermediate Municipal Trust)
We have audited the accompanying statement of assets and liabilities of
Federated Intermediate Municipal Trust (an investment portfolio of
Intermediate Municipal Trust, a Massachusetts business trust), including the
schedule of portfolio investments, as of May 31, 1996, 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 financial
highlights (see page 2 and 14 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility
of the Trust's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of May 31, 1996, by correspondence with the custodian
and brokers. As to the securities purchased but not received, we requested
confirmation from brokers and, when replies were not received, we carried
out other alternative auditing procedures. 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
Federated Intermediate Municipal Trust, an investment portfolio of
Intermediate Municipal Trust, as of May 31, 1996, 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 financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
July 12, 1996
ADDRESSES
Fund
Federated Intermediate
Municipal Trust
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Distributor
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
Federated Management
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder
Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Public Accountants
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, Pennsylvania 15222
FEDERATED INTERMEDIATE
MUNICIPAL TRUST
PROSPECTUS
A Diversified Portfolio of Intermediate
Municipal Trust, An Open-End Management
Investment Company
July 31, 1996
[Graphic]
Federated Investors
Since 1955
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Recycled Paper
Cusip 458810108
8061702A-IS (7/96)
FEDERATED INTERMEDIATE MUNICIPAL TRUST
(A PORTFOLIO OF INTERMEDIATE MUNICIPAL TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Federated Intermediate Municipal Trust (the ``Fund'), a
portfolio of Intermediate Municipal Trust (the ``Trust') dated July
31, 1996. This Statement is not a prospectus. You may request a copy of
a prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated July 31, 1996
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 458810108
8061702B (7/96)
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
ACCEPTABLE INVESTMENTS 1
WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS 2
TEMPORARY INVESTMENTS 2
PORTFOLIO TURNOVER 2
INVESTMENT LIMITATIONS 3
MANAGEMENT OF INTERMEDIATE MUNICIPAL TRUST5
OFFICERS AND TRUSTEES 5
FUND OWNERSHIP 9
TRUSTEES' COMPENSATION 9
TRUSTEE LIABILITY 10
INVESTMENT ADVISORY SERVICES 10
ADVISER TO THE FUND 10
ADVISORY FEES 10
OTHER RELATED SERVICES 10
OTHER SERVICES 10
FUND ADMINISTRATION 10
CUSTODIAN AND PORTFOLIO ACCOUNTANTS 11
TRANSFER AGENT 11
INDEPENDENT PUBLIC ACCOUNTANTS 11
SHAREHOLDER SERVICES 11
BROKERAGE TRANSACTIONS 11
PURCHASING SHARES 12
CONVERSION TO FEDERAL FUNDS 12
DETERMINING NET ASSET VALUE 12
DETERMINING VALUE OF SECURITIES 12
REDEEMING SHARES 12
REDEMPTION IN KIND 12
EXCHANGING SECURITIES FOR FUND SHARES 12
TAX CONSEQUENCES 13
MASSACHUSETTS PARTNERSHIP LAW 13
TAX STATUS 13
THE FUND'S TAX STATUS 13
SHAREHOLDERS' TAX STATUS 13
TOTAL RETURN 13
YIELD 14
TAX-EQUIVALENT YIELD 14
PERFORMANCE COMPARISONS 15
ECONOMIC AND MARKET INFORMATION 16
ABOUT FEDERATED INVESTORS 16
MUTUAL FUND MARKET 16
APPENDIX 18
GENERAL INFORMATION ABOUT THE FUND
Intermediate Municipal Trust (the `Trust'') was established as a
Massachusetts business trust under a Declaration of Trust dated May 31,
1985. On September 1, 1993, the name of the Trust was changed from
`Federated Intermediate Municipal Trust'' to ``Intermediate Municipal
Trust.''
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide current income exempt from
federal regular income tax. The investment objective cannot be changed
without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests at least 80% of its net assets in a diversified portfolio
of municipal securities with an average weighted maturity of not less than
three or more than ten years. The investment policy objective stated above
cannot be changed without the approval of shareholders. The following
investment policies may be changed without shareholder approval.
CHARACTERISTICS
The municipal securities in which the Fund invests have the
characteristics set forth in the prospectus.
A municipal security will be determined by the Fund's adviser to meet
the quality standards established by the Trust's Board of Trustees
(the "Trustees") if it is of comparable quality to municipal
securities within the Fund's rating requirements. The Trustees
consider the creditworthiness of the issuer of a municipal security,
the issuer of a participation interest if the Fund has the right to
demand payment from the issuer of the interest, or the guarantor of
payment by either of those issuers. The Fund is not required to sell a
municipal security if the security's rating is reduced below the
required minimum subsequent to its purchase by the Fund. The
investment adviser considers this event, however, in its determination
of whether the Fund should continue to hold the security in its
portfolio. If Moody's Investors Service, Inc. or Standard & Poor's
Ratings Group ratings change because of changes in those organizations
or in their rating systems, the Fund will try to use comparable
ratings as standards in accordance with the investment policies
described in the Fund's prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of municipal securities are:
omunicipal notes and tax-exempt commercial paper;
oserial bonds sold with a series of maturity dates;
otax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes;
obond anticipation notes sold in anticipation of the issuance of
longer-term bonds;
opre-refunded municipal bonds refundable at a later date (payment of
principal and interest on prerefunded bonds are assured through the
first call date by the deposit in escrow of U.S. government
securities); or
ogeneral obligation bonds secured by a municipality's pledge of
taxation.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation
interests frequently provide or secure from other financial
institutions irrevocable letters of credit or guarantees and give the
Fund the right to demand payment on specified notice (normally within
thirty days) from the issuer of the letter of credit or guarantee.
These financial institutions may charge certain fees in connection
with their repurchase commitments, including a fee equal to the excess
of the interest paid on the municipal securities over the negotiated
yield at which the participation interests were purchased by the Fund.
By purchasing participation interests, the Fund is buying a security
meeting the maturity and quality requirements of the Fund and is also
receiving the tax-free benefits of the underlying securities.
In the acquisition of participation interests, the Fund's investment
adviser will consider the following quality factors:
oa high-quality underlying municipal security (of which the Trust
takes possession);
oa high-quality issuer of the participation interest; or
oa guarantee or letter of credit from a high-quality financial
institution supporting the participation interest.
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the market value
of municipal securities from their original purchase prices.
Accordingly, as interest rates decrease or increase, the potential for
capital appreciation or depreciation is less for variable rate
municipal securities than for fixed income obligations.
Many municipal securities with variable interest rates purchased by
the Fund are subject to repayment of principal (usually within seven
days) on the Fund's demand. The terms of these variable rate demand
instruments require payment of principal and accrued interest from the
issuer of the municipal obligations, the issuer of the participation
interests, or a guarantor of either issuer.
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. Settlement dates may be a month
or more after entering into these transactions, and the market values of
the securities purchased may vary from the purchase prices. No fees or
other expenses, other than normal transaction costs, are incurred. However,
liquid assets of the Fund sufficient to make payment for the securities to
be purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the transaction
has been settled. The Fund may engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of an amount up
to 20% of the total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments, from time to time, for
temporary, defensive purposes. The Fund does not presently intend to invest
in taxable temporary investments in the coming year. The Fund might invest
in temporary investments:
o while waiting to invest proceeds of sales of portfolio securities,
although generally such proceeds will be invested in municipal
securities as quickly as possible;
o in anticipation of redemption requests; or
o for temporary defensive purposes, in which case the Fund may invest
more than 20% of the value of its net assets in cash or cash items,
U.S. Treasury bills or securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or repurchase
agreements.
The Fund will not purchase temporary investments (other than securities of
the U.S. government, its agencies or instrumentalities) if, as a result of
the purchase, 25% or more of the value of its total assets would be
invested in any one industry.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government or
agency securities or other securities to the Fund and agree at the
time of sale to repurchase them at a mutually agreed upon time and
price within one year from the date of acquisition. The Fund or its
custodian will take possession of the securities subject to repurchase
agreements. 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 may only enter into repurchase agreements
with banks and other recognized financial institutions such as
broker/dealers which are found by the Fund's adviser to be
creditworthy pursuant to guidelines established by the Trustees. The
Fund's adviser will also monitor the creditworthiness of the seller.
From time to time, such as when suitable municipal securities are not
available, the Fund may invest a portion of its assets in cash. Any portion
of the Fund's assets maintained in cash will reduce the amount of assets in
municipal securities and thereby reduce the Fund's yield.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an attempt
to achieve the Fund's investment objective. During the fiscal years ended
May 31, 1996 and1995, the portfolio turnover rates were 19% and 11%,
respectively.
INVESTMENT LIMITATIONS
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of the Fund's total assets, the Fund
will not purchase securities of any one issuer (other than securities
issued or guaranteed by the government of the United States or its
agencies or instrumentalities) if as a result more than 5% of the
value of its total assets would be invested in the securities of that
issuer.
Under this limitation, each governmental subdivision, including states
and the District of Columbia, territories, possessions of the United
States, or their political subdivisions, agencies, authorities,
instrumentalities, or similar entities, will be considered a separate
issuer if its assets and revenues are separate from those of the
governmental body creating it and the security is backed only by its
own assets and revenues.
Industrial development bonds backed only by the assets and revenues of
a nongovernmental user are considered to be issued solely by that
user. If in the case of an industrial development bond or government-
issued security, a governmental or some other entity guarantees the
security, such guarantee would be considered a separate security
issued by the guarantor, subject to a limit on investments in the
guarantor of 10% of total assets.
ACQUIRING SECURITIES
The Fund will not acquire the voting securities of any issuer, except
as part of a merger, consolidation, reorganization, or acquisition of
assets. It will not invest in securities issued by any other
investment company or investment trust.
CONCENTRATION OF INVESTMENTS
The Fund does not intend to purchase securities (other than pre-
refunded municipal bonds prior to the termination of the escrow
arrangement, securities guaranteed by the U.S. government or its
agencies or direct obligations of the U.S. government) if, as a result
of such purchases, 25% or more of the value of its total assets would
be invested in a governmental subdivision in any one state, territory,
or possession of the United States.
This policy applies to securities which are related in such a way that
an economic, business, or political development affecting one security
would also affect the other securities (such as securities paid from
revenues from selected projects in transportation, public works,
education, or housing).
BORROWING
The Fund will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in
excess of 5% of the value of its total assets or in an amount up to
one-third of the value of its total assets, including the amount
borrowed, in order to meet redemption requests without immediately
selling portfolio securities. 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 securities 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 securities while any
borrowings are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, it may mortgage,
pledge or hypothecate assets having a market value not exceeding 10%
of the value of total assets at the time of the borrowing.
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.
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities except for delayed-delivery
and when-issued transactions and futures contracts, each of which
might be considered senior securities. In addition, the Fund reserves
the right to purchase municipal securities which the Fund has the
right or obligation to sell to a third party (including the issuer of
a participation interest).
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, although it may invest
in 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 or
leases.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire
publicly or nonpublicly issued municipal securities as permitted by
its investment objective and policies.
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 put options
on municipal securities in an amount up to 10% of its total assets or
may purchase municipal securities accompanied by agreements of sellers
to repurchase them at the Fund's option.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets
in industrial development bonds where the payment of principal and
interest are the responsibility of a company with a record of less
than three years of continuous operation, including the operation of
any predecessor.
The above investment limitations cannot be changed without shareholder
approval. The following restrictions, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
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 purchases and sales of securities.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE TRUST
The Fund will not purchase or retain the securities of any issuer if
the Officers and Trustees of the Trust or its investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in securities
which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice, and certain
restricted securities not determined by the Trustees to be liquid.
In addition, to comply with investment restrictions of a certain state, the
Fund will not invest in real estate limited partnerships.
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 has no present intent to
borrow money, pledge securities, or purchase put options during the coming
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 and loan having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."
MANAGEMENT OF INTERMEDIATE MUNICIPAL TRUST
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, birthdates, present
positions with Intermediate 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.; 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.
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.
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 or Trustee 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 or Trustee 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 or Trustee 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 or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine 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 or Trustee 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 or Trustee of the Funds; formerly, Counsel, Horizon Financial,
F.A., Western Region.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director
or Trustee 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 or
Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics 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 or Trustee 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 or Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the 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 Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President, Secretary
and Treasurer of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board between meetings of
the Board.
As 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 Group of
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: 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; Federated
Insurance Series; 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 Obligation;
The Virtus Funds; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of July 5, 1996, no shareholder of record owned 5% or more of the
outstanding Shares of the Fund.
TRUSTEES' COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST *# FROM FUND COMPLEX +
John F. Donahue $0 $ 0 for the Trust and
Chairman and Trustee 54 other investment companies in the Fund
Complex
Thomas G. Bigley,++ $552.58 $86,331 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John T. Conroy, Jr., $600.35 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
William J. Copeland, $600.35 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
James E. Dowd, $600.35 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D., $552.58 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr., $600.35 $115,760 for the Trust and
++
Mr. Bigley served on 39 investment companies in the Federated Funds Complex
from January 1 through September 30, 1995. On October 1,
1995, he was appointed a Trustee on 15 additional Federated Funds.
Trustee 54 other investment companies in the Fund
Complex
Glen R. Johnson $ 0 $ 0 for the Trust and
President and Trustee 9 other investment companies in the Fund
Complex
Peter E. Madden, $552.58 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Gregor F. Meyer, $552.58 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John E. Murray, Jr., $552.58 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Wesley W. Posvar,$552.58 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Marjorie P. Smuts, $552.58 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
*Information is furnished for the fiscal year ended May 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
three 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
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
Fund
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
May 31, 1996, 1995, and 1994, the Adviser earned $895,416, $1,038,460, and
$1,224,249, respectively, which were reduced by $86,923, $6,917, and
$308,350, respectively, because of undertakings to limit the Fund's
expenses.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose shares
are registered for sale in those states. If the Fund's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2.5% per year of the first $30 million of average net
assets, 2% per year of the next $70 million of average net assets, and
1.5% per year of the remaining average net assets, the Adviser will
reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser
will be limited, in any single fiscal year, by the amount of the
investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain
electronic equipment and software to institutional customers in order to
facilitate the purchase of shares of funds offered by Federated Securities
Corp.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's administrator. Prior to March
1, 1994, Federated Administrative Sevices, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the "Administrators." For the fiscal years ended May 31, 1996, 1995, and
1994, the Administrators earned $169,350, $196,539, and $303,207,
respectively, none of which was waived. Dr. Henry 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 Services Company.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is custodian
for the securities and cash of the Fund. Federated Services Company,
Pittsburgh, Pennsylvania, provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments. The fee paid
for this service is based upon the level of the Fund's average net assets
for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based upon 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, Pennsylvania.
SHAREHOLDER SERVICES
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
to maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that
the Fund will benefit by: (1) providing personal services to shareholders;
(2) investing shareholder assets with a minimum of delay and administrative
detail; (3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their accounts.
For the fiscal year ending May 31, 1996, the Fund paid $559,635 pursuant to
the Shareholder Services Agreement of which $440,483 was waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The Adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the
Fund or to the Adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the Adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the Adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The Adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal year(s) ended May 31, 1996, 1995, and
1994, the Fund paid no brokerage commissions.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the Adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the Adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
PURCHASING SHARES
Shares are sold at their net asset value without a sales load on days the
New York Stock Exchange is open for business. The procedure for purchasing
Shares is explained in the prospectus under "Investing in the Fund.''
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds. This conversion must
be made before shares are purchased. State Street Bank and Trust Company
("State Street Bank") acts as the shareholder's agent in depositing checks
and converting them to federal funds.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the prospectus.
DETERMINING VALUE OF SECURITIES
The values of the Fund's portfolio securities are determined as follows:
o according to prices provided by independent pricing services, which do
not include market prices for the Fund's specific portfolio securities
and may be determined without exclusive reliance on quoted prices, and
which may take into account appropriate factors such as yield,
quality, coupon rate, maturity, type of issue, trading characteristics
and other market data employed in determining valuations for such
securities; or
o for short-term obligations with remaining maturities of 60 days or
less, at the time of purchase, at amortized cost unless the Trustees
determine that particular circumstances of the security indicate
otherwise.
REDEEMING SHARES
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares.''Although State Street Bank does not
charge for telephone redemptions, it reserves the right to charge a fee for
the cost of wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in a
manner the Trustees determine to be fair and equitable.
The Fund has elected to be governed by Rule 18f-1 of the Investment Company
Act of 1940, as amended, under which the Trust is obligated to redeem
shares for any one shareholder in cash only up to the lesser of $250,000 or
1% of the Fund's net asset value during any 90-day period.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange municipal securities they already own for shares or
they may exchange a combination of municipal securities and cash for
shares. An investor should forward the securities in negotiable form with a
letter of transmittal and authorization to Federated Securities Corp. The
Fund will notify the investor of its acceptance and valuation of the
securities within five business days of their receipt by State Street Bank.
The Fund values securities in the same manner as the Fund values its
assets. The basis of the exchange will depend upon the net asset value of
Fund 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 Trust, along with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the cost basis of the securities exchanged for
shares, a gain or loss may be realized by the investor.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of 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 that
the Trust or its Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required to use its property to protect
or compensate the shareholder. On request, the Trust will defend any claim
made and pay any judgment against a shareholder for any act or obligation
of the Trust on behalf of the Fund. Therefore, financial loss resulting
from liability as a shareholder of the Fund will occur only if the Trust
itself cannot meet its obligations to indemnify shareholders and pay
judgments against them from the assets of the Fund.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. To qualify for this
treatment, the Fund must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the sale of
portfolio securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because of:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or
oan attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such, whether
they are taken in cash or reinvested, and regardless of the length of
time the shareholder has owned the shares. Any loss by a shareholder
on Fund shares held for less than six months and sold after a capital
gains distribution will be treated as a long-term capital loss to the
extent of the capital gains distribution.
TOTAL RETURN
The Fund's average annual total returns for the Fund, and its predecessor,
Institutional Shares of the Fund (when the Fund was offered with separate
classes of shares) for the one-year, five-year and ten-year periods ended
May 31, 1996, were 3.78%, 6.01% and 6.36%, respectively.
The average annual total return for the Fund 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.
YIELD
The Fund's yield for the thirty-day period ended May 31, 1996, was 4.43%.
The yield for shares of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by the Fund over a thirty-day period by the maximum
offering price per share on the last day of the period. This value is then
annualized using semi-annual compounding. This means that the amount of
income generated during the thirty-day period is assumed to be generated
each month over a twelve-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and brokers/dealers charge fees
in connection with services provided in conjunction with an investment in
the Fund, performance will be reduced for those shareholders paying those
fees.
TAX-EQUIVALENT YIELD
The Fund's tax-equivalent yield for the thirty-day period ended May 31,
1996, was 7.33%.
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 and assuming
that income is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Fund's
portfolio generally remains free from federal regular income tax,* and
is often free from state and local taxes as well. As the table below
indicates, a "tax-free" investment is an attractive choice for
investors, particularly in times of narrow spreads between tax-free
and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1996
MULTISTATE MUNICIPAL FUNDS
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
Tax-Exempt
Yield Taxable Yield Equivalent
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were not
used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Fund shares.
* Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
PERFORMANCE COMPARISONS
The performance of the Fund depends on such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses ; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings
and offering price per share are factors in the computation of yield and
total return.
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 by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in offering price over a specific period of time. From time to time,
the Fund will quote its Lipper ranking in the intermediate municipal
bond funds category in advertising and sales literature.
o MORNINGSTAR INC., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ - listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
o LEHMAN BROTHERS FIVE-YEAR STATE GENERAL OBLIGATION BONDS is an index
comprised of all state general obligation debt issues with maturities
between four and six years. These bonds are rated A or better and
represent a variety of coupon ranges. Index figures are total returns
calculated for one, three, and twelve month periods as well as year-
to-date. Total returns are also calculated as of the index inception,
December 31, 1979.
o LEHMAN BROTHERS TEN-YEAR STATE GENERAL OBLIGATION BONDS is an index
comprised of the same issues noted above except that the maturities
range between nine and eleven years. Index figures are total returns
calculated for the same periods as listed above.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These total
returns represent the historic change in the value of an investment in the
Fund based on monthly reinvestment of dividends over a specified period of
time.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns in general, that demonstrate
basic investment concepts such as tax-deferred compounding, dollar-cost
averaging and systematic investment. In addition, the Fund can compare its
performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Fund. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the municipal sector, as of December 31, 1995, Federated Investors
managed 12 bond funds with approximately $2.0 billion in assets and 20
money market funds with approximately $7.8 billion in total assets. In
1976, Federated introduced one of the first municipal bond mutual funds in
the industry and is now one of the largest institutional buyers of
municipal securities. The Fund may quote statistics from organizations
including The Tax Foundation and the National Taxpayers Union regarding the
tax obligations of Americans.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and
high yield corporate bond management while William D. Dawson, Executive
Vice President, oversees Federated's domestic fixed income management.
Henry A. Frantzen, Executive Vice President, oversees the management of
Federated'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 $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of applications, including defined benefit and
defined contribution programs, cash management, and asset/liability
management. Institutional clients include corporations, pension
funds, tax-exempt entities, foundations/endowments, insurance companies,
and investment and financial advisors. The marketing effort to these
institutional clients is headed by John B. Fisher, President,
Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust
divisions of the top 100 bank holding companies use Federated funds in
their clients' portfolios. The marketing effort to trust clients is
headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing
& Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage
firms nationwide--including 200 New York Stock Exchange firms--supported
by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has
earned it high rankings in several DALBAR Surveys. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer
Division.
* SOURCE: Investment Company Institute
APPENDIX
STANDARD AND POOR'S RATINGS GROUP (`S&P'') MUNICIPAL BOND 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 rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
NR--Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate or municipal bond rating
system. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end
of its generic rating category.
FITCH INVESTORS SERVICE, INC. INVESTMENT GRADE BOND RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the "AAA" category.
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL NOTE RATINGS
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.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM LOAN RATINGS
MIG1/VMIG1--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/VMIG2--This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
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 for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-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:
o leading market positions in well-established industries;
o high rates of return on funds employed;
o conservative capitalization structure with moderate reliance on debt
and ample asset protection;
o broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o well-established access to a range of financial markets and assured
sources of alternative liquidity.
PRIME-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.
FEDERATED OHIO INTERMEDIATE MUNICIPAL TRUST
(A PORTFOLIO OF INTERMEDIATE MUNICIPAL TRUST)
PROSPECTUS
The shares of Federated Ohio Intermediate Municipal Trust (the "Fund")
offered by this prospectus represent interests in a non-diversified
portfolio of securities of Intermediate Municipal Trust (the "Trust"), an
open-end management investment company (a mutual fund).
The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax and the personal income taxes imposed
by the State of Ohio. The Fund invests primarily in a portfolio of Ohio
municipal securities, including securities of states, territories, and
possessions of the United States which are not issued by or on behalf of the
State of Ohio or its political subdivisions, but which are exempt from
federal regular income tax and Ohio state personal income taxes.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT 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 the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information, dated July
31, 1996, 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
1-800-341-7400. To obtain other information or to make inquiries about the
Fund, contact the Fund at the address listed in the back of this prospectus.
The Statement of Additional Information, material incorporated by reference
into this document, and other information regarding the Fund is maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION 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 July 31, 1996
Table of Contents
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Ohio Municipal Securities 6
Investment Risks 6
Non-Diversification 6
Investment Limitations 7
INTERMEDIATE MUNICIPAL TRUST INFORMATION 7
Management of the Trust 7
Distribution of Fund Shares 8
Administration of the Fund 9
NET ASSET VALUE 10
INVESTING IN THE FUND 10
Share Purchases 10
Minimum Investment Required 10
What Shares Cost 10
Exchanging Securities for Fund
Shares 11
Certificates and Confirmations 11
Dividends 11
Capital Gains 11
REDEEMING SHARES 11
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 12
Voting Rights 12
TAX INFORMATION 13
Federal Income Tax 13
State and Local Taxes 14
PERFORMANCE INFORMATION 14
FINANCIAL STATEMENTS 15
REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS 26
ADDRESSES 27
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
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
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.00%
12b-1 Fee None
Total Other Expenses (after expense reimbursement) 0.45%
Shareholder Services Fee (after waiver)(2) 0.10%
Total Operating Expenses(3) 0.45%
</TABLE>
(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 in the table above are based on expenses
expected during the fiscal year ending May 31, 1997. The total operating
expenses were 0.45% for the fiscal year ended May 31, 1996 and would have
been 4.53% absent the voluntary waiver of the management fee, a portion of
the shareholder services fee and the voluntary reimbursement of certain
other operating expenses.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs
and expenses, see "Investing in the Fund" and "Intermediate Municipal Trust
Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period. $5 $14 $25 $57
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FEDERATED OHIO INTERMEDIATE MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 26.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.79 $ 9.53 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.47 0.47 0.22
Net realized and unrealized gain (loss) on investments (0.04) 0.26 (0.47)
Total from investment operations 0.43 0.73 (0.25)
LESS DISTRIBUTIONS
Distributions from net investment income (0.47) (0.47) (0.22)
NET ASSET VALUE, END OF PERIOD $ 9.75 $ 9.79 $ 9.53
TOTAL RETURN(B) 4.41% 7.98% (2.52%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.45% 0.45% 0.24%*
Net investment income 4.78% 5.05% 4.69%*
Expense waiver/reimbursement(c) 4.08%(d) 4.80%(d) 3.07%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $8,375 $6,607 $3,379
Portfolio turnover 46% 56% 48%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 2, 1993 (date of
initial public investment) to May 31, 1994.
(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.
(d) For the years ended May 31, 1996, and May 31, 1995, the adviser waived
$35,966 and $26,346, respectively, of the investment advisory fee, which
represents 0.50% and 0.50% of average net assets, and the adviser reimbursed
other operating expenses of $128,177 and $115,674, respectively, which
represents 1.78% and 2.20% of average net assets, to comply with certain
state expense limitations. The remainder of the waiver reimbursement is
voluntary. The 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)
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended May 31, 1996, which can be obtained
free of charge.
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated May 31, 1985. The Declaration of Trust permits
the Trust to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities. The shares in
any one portfolio may be offered in separate classes.
Shares of the Fund are designed for the investment of monies generally held
by financial institutions in a fiduciary capacity. A minimum initial
investment of $25,000 over a 90-day period is required. The Fund may not be
a suitable investment for non-Ohio taxpayers or retirement plans since it
intends to invest primarily in Ohio municipal securities which are not
likely to produce competitive after-tax yields for such persons and entities
compared to other investments.
Shares are sold and redeemed at net asset value without a sales charge
imposed by the Fund.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt
from federal regular income tax and the personal income taxes imposed by the
State of Ohio. Interest income of the Fund that is exempt from federal
regular income tax and Ohio state personal income tax retains its tax-free
status when distributed to the Fund's shareholders. The Fund pursues its
investment objective by investing at least 80% of its net assets in a
non-diversified portfolio of Ohio municipal securities. The portfolio has a
dollar-weighted average maturity of not less than three or more than ten
years. While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies
described in this prospectus. The investment objective and the policy stated
above cannot be changed without approval of shareholders.
INVESTMENT POLICIES
The investment policies described below may be changed by the Board of
Trustees (the "Trustees") without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Ohio municipal securities in which the Fund
invests are:
* obligations issued by or on behalf of the state of Ohio, its political
subdivisions, or agencies;
* debt obligations of any state, territory, or possession of the United
States, including the District of Columbia, or any political subdivision of
any of these; and
* participation interests, as described below, in any of the above
obligations,
the interest from which is, in the opinion of bond counsel for the issuers
or in the opinion of officers of the Fund and/or the investment adviser to
the Fund, exempt from both federal regular income tax and the personal
income taxes imposed by the State of Ohio.
The prices of fixed income securities fluctuate inversely to the direction
of interest rates.
AVERAGE MATURITY. The dollar-weighted average maturity of the Fund's
portfolio of Ohio municipal securities will not be less than three years or
more than ten years. For purposes of determining the dollar-weighted average
portfolio maturity of the Fund's portfolio, the maturity of a municipal
security will be its ultimate maturity, unless it is probable that the
issuer of the security will take advantage of maturity-shortening devices
such as a call, refunding, or redemption provision, in which case the
maturity date will be the date on which it is probable that the security
will be called, refunded, or redeemed. If the municipal security includes
the right to demand payment, the maturity of the security for purposes of
determining the Fund's dollar-weighted average portfolio maturity will be
the period remaining until the principal amount of the security can be
recovered by exercising the right to demand payment.
CHARACTERISTICS. The municipal securities in which the Fund invests are:
* rated within the three highest ratings for municipal securities by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa, or A), Standard & Poor's
Rating Group ("S&P") (AAA, AA, or A), or Fitch Investors Service, Inc.
("Fitch") (AAA, AA, or A);
* guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest;
* fully collateralized by an escrow of U.S. government securities or other
securities acceptable to the Fund's adviser;
* rated at the time of purchase within Moody's highest short-term municipal
obligation rating (MIG1/VMIG1) or Moody's highest municipal commercial paper
rating (PRIME-1) or S&P's highest municipal commercial paper rating (SP-1);
* unrated if, at the time of purchase, other municipal securities of that
issuer are rated A or better by Moody's, S&P or Fitch; or
* unrated if determined to be of equivalent quality to one of the foregoing
rating categories by the Fund's investment adviser.
If a security is subsequently downgraded, the adviser will determine whether
it continues to be an acceptable investment; if not, the security will be
sold. A description of the rating categories is contained in the Appendix to
the Statement of Additional Information.
PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings associations, and
insurance companies. These participation interests give the Fund an
undivided interest in Ohio municipal securities. The financial institutions
from which the Fund purchases participation interests frequently provide or
secure irrevocable letters of credit or guarantees to assure that the
participation interests are of high quality. The Trustees will determine
whether participation interests meet the prescribed quality standards for
the Fund.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the Ohio municipal securities
which the Fund purchases may have variable interest rates. Variable interest
rates are ordinarily stated as a percentage of a published interest rate,
interest rate index, or a similar standard, such as the 91-day U.S. Treasury
bill rate. Many variable rate municipal securities are subject to payment of
principal on demand by the Fund in not more than seven days. All variable
rate municipal securities will meet the quality standards for the Fund. The
Fund's investment adviser has been instructed by the Trustees to monitor the
pricing, quality, and liquidity of the variable rate municipal securities,
including participation interests held by the Fund on the basis of published
financial information and reports of the rating agencies and other
analytical services.
MUNICIPAL LEASES. Also included within the general category of municipal
securities are certain lease obligations or installment purchase contract
obligations and participations therein (hereinafter collectively referred to
as "lease obligations") of municipal authorities or entities. Although lease
obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to budget for, appropriate,
and make the payments due under the lease obligation. Interest on lease
obligations is tax-exempt to the same extent as if the municipality had
issued debt obligations to finance the underlying project or purchase.
However, certain lease obligations contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such
purpose on a yearly basis. In addition to the "non-appropriation" risk,
these securities represent a relatively new type of financing that has not
yet developed the depth of marketability associated with more conventional
bonds and some lease obligations may be illiquid. Although
"non-appropriation" lease obligations are generally secured by the leased
property, disposition of the property in the event of foreclosure might
prove difficult. In addition, the tax treatment of such obligations in the
event of "non-appropriation" is unclear. The Fund does not invest more than
10% of its total assets in lease obligations that contain
"non-appropriation" clauses.
If the Fund purchases unrated municipal leases, the Trustees will be
responsible for determining, on an ongoing basis, the credit quality of such
leases and the likelihood that such leases will not be cancelled.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Ohio
municipal 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.
TEMPORARY INVESTMENTS. The Fund normally invests in Ohio municipal
securities, as described above. However, from time to time, when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term non-Ohio municipal
tax-exempt obligations or taxable temporary investments. These temporary
investments include: notes issued by or on behalf of municipal or corporate
issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; and repurchase agreements (arrangements in
which the organization selling the Fund a bond or temporary investment
agrees at the time of sale to repurchase it at a mutually agreed upon time
and price).
There are no rating requirements applicable to temporary investments with
the exception of temporary municipal securities, which are subject to the
same rating requirements as all other municipal securities in which the Fund
invests. However, the investment adviser will limit temporary investments to
those it considers to be of comparable quality to the acceptable investments
of the Fund.
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention of generating income subject to federal regular
income tax or Ohio state personal income 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 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. However, interest on and principal of
revenue bonds 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 municipal bond market; the size of
the particular offering; the maturity of the obligations; and the rating of
the issue. Further, any adverse economic conditions or developments
affecting the state of Ohio or its municipalities could impact the Fund's
portfolio. The State of Ohio and certain underlying municipalities face
potential economic problems over the longer term. The state economy has
grown more slowly than that of the nation as a whole, resulting in a gradual
erosion of its relative economic affluence. The causes of this relative
decline are varied and complex, involving in many cases national and
international demographic and economic trends beyond the influence of the
state. 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 guarantors of either, to meet
their obligations for the payment of interest and principal when due.
Investing in Ohio municipal securities which meet the Fund's quality
standards may not be possible if the State of Ohio or its municipalities do
not maintain their current credit ratings. In addition, certain Ohio
constitutional amendments, legislative measures, executive orders,
administrative regulations, or voter initiatives could result in adverse
consequences affecting Ohio municipal securities.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no
limit on the percentage of assets which can be invested in any single
issuer. An investment in the Fund, therefore, will entail greater risk than
would exist in a diversified portfolio of securities 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 was diversified among more
issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code,
as amended. This undertaking requires that at the end of each quarter of the
taxable year, with regard to at least 50% of the Fund's total assets, no
more than 5% of its total assets are invested in the securities of a single
issuer; beyond that no more than 25% of its total assets are invested in the
securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a portfolio 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 10%
of the value of those assets to secure such borrowings. The Fund does not
intend to engage in any borrowings during the coming fiscal year.
The above investment limitations cannot be changed without shareholder
approval. The following limitation, however, can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in this limitation becomes effective.
The Fund will not invest more than 15% of its net assets in securities which
are illiquid, including repurchase agreements providing for settlement in
more than seven days after notice, and restricted securities determined by
the Trustees not to be liquid.
INTERMEDIATE MUNICIPAL TRUST INFORMATION
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. 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 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 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 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. Also, the
adviser may voluntarily choose to waive a portion of its fee or reimburse
other expenses of the Fund, but reserves the right to terminate such waiver
or reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940, as amended. It is a subsidiary of Federated
Investors. All of the Class A (voting) shares of Federated Investors are
owned by a trust, the Trustees of which are John F. Donahue, Chairman and
Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son,
J. Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees and could result in severe penalties.
PORTFOLIO MANAGER'S BACKGROUND. J. Scott Albrecht has been the Fund's
portfolio manager since the Fund's inception. Mr. Albrecht joined Federated
Investors in 1989 and has been a Vice President of the Fund's investment
adviser since 1994. From 1992 to 1994, Mr. Albrecht served as an Assistant
Vice President of the Fund's investment adviser. In 1991, Mr. Albrecht acted
as an investment analyst. Mr. Albrecht is a Chartered Financial Analyst and
received his M.S. in Public Management from Carnegie Mellon University.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund. Federated Services Company provides these at an annual
rate which relates to the average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS
<C> <S>
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to .25% of the average
daily net asset value of the Fund shares, computed at an annual rate, to
obtain certain personal services for shareholders and to maintain
shareholder accounts. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily. Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions
to perform shareholder services. Financial institutions will receive fees
based upon shares owned by their clients or customers. The schedules of such
fees and the basis upon which such fees will be paid will be determined from
time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Shareholder Services Agreement, Federated Securities
Corp. and Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder
services. The support may include sponsoring sales, educational and training
seminars for their employees, providing sales literature, and engineering
computer software programs that emphasize the attributes of the Fund. Such
assistance 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.
NET ASSET VALUE
The Fund's net asset value per share fluctuates. It is determined by
dividing the sum of all securities and other assets, less liabilities, by
the total number of shares outstanding.
INVESTING IN THE FUND
SHARE PURCHASES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open for business. Shares may be purchased either by wire or mail. The Fund
reserves the right to reject any purchase request.
To purchase shares of the Fund, open an account by calling Federated
Securities Corp. Information needed to establish the account will be taken
over the telephone.
BY WIRE. To purchase shares of the Fund by Federal Reserve wire, call the
Fund before 1:00 p.m. (Eastern time) to place an order. The order is
considered received immediately. Payment by federal funds must be received
before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as
follows: Federated Shareholder Services Company, c/o State Street Bank and
Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
Federated Ohio Intermediate Municipal 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.
BY MAIL. To purchase shares of the Fund by mail, send a check made payable
to Federated Ohio Intermediate Municipal Trust to: Federated Shareholder
Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600. Orders by
mail are considered received when payment by check is converted by State
Street Bank and Trust Company ("State Street Bank") into federal funds. This
is normally the next business day after State Street Bank receives the
check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $25,000, plus any financial
intermediary fee, if applicable. However, an account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days. An
institutional investor's minimum investment will be calculated by combining
all accounts it maintains with the Fund.
Individual accounts established through a financial intermediary may be
subject to a different minimum investment requirement.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who
purchase shares through a financial intermediary may be charged a service
fee by that financial intermediary.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value
of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase shares are received; or (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain municipal securities or a combination of
securities and cash for Fund shares. The securities and cash must have a
market value of at least $25,000. The Fund reserves the right to determine
the acceptability of the securities to be exchanged. Securities accepted by
the Fund are valued in the same manner as the Fund values its assets.
Shareholders wishing to exchange securities should first contact Federated
Securities Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested in writing.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during
that month.
DIVIDENDS
Dividends are declared daily and paid monthly to all shareholders invested
in the Fund on the record date. Dividends are declared just prior to
determining net asset value. Shares purchased by wire begin earning
dividends on the business day after the order is received. Shares purchased
by check begin earning dividends on the business day after the check is
converted, upon instruction of the transfer agent, into federal funds.
Dividends are automatically reinvested on payment dates at the ex-dividend
date net asset value in additional shares of the Fund unless cash payments
are requested by contacting the Fund.
CAPITAL GAINS
Distributions of net realized long-term capital gains realized by the Fund,
if any, will be made at least once every twelve months.
REDEEMING SHARES
The Fund redeems shares at their net asset value next determined after the
Fund receives the redemption request. Redemptions will be made on days on
which the Fund computes its net asset value. Investors who redeem shares
through a financial intermediary may be charged a service fee by that
financial intermediary. Redemption requests must be received in proper form
and can be made by telephone request or by written request.
BY TELEPHONE. Shareholders may redeem their shares by telephoning the Fund
before 4:00 p.m. (Eastern time). All proceeds will normally be wire
transferred the following business day, but in no event more than seven
days, to the shareholder's account at a domestic commercial bank that is a
member of the Federal Reserve System. 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. If at any time, the Fund shall determine it necessary to
terminate or modify this method of redemption, shareholders would be
promptly notified. Telephone redemption instructions may be recorded.
An authorization form permitting the Fund to accept telephone redemption
requests must first be completed. It is recommended that investors request
this privilege at the time of their initial application. If not completed at
the time of initial application, authorization forms and information on this
service can be obtained through Federated Securities Corp. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should
occur, another method of redemption, such as "By Mail," should be
considered.
BY MAIL. Shares may be redeemed in any amount by mailing a written request
to: Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 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: Federated Ohio Intermediate Municipal
Trust; 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.
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 of
record if the account balance falls below the required minimum value of
$25,000 due to shareholder redemptions. This requirement does not apply,
however, if the balance falls below $25,000 because of changes in the Fund's
net asset value. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of each
portfolio in the Trust have equal voting rights except that in matters
affecting only a particular fund, only shareholders of that fund are
entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of
Trustees under certain circumstances. Trustees may be removed by the
Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by
the Trustees upon the written request of shareholders owning at least 10% of
the outstanding shares of all series in the Trust entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code of 1986, as amended (the "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 federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, dividends representing net interest income earned
on some municipal bonds may be included in calculating the federal
individual alternative minimum tax or the federal alternative minimum tax
for corporations.
The alternative minimum tax, up to 28% of alternative minimum taxable income
for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is
equal to the regular taxable income of the taxpayer increased by certain
"tax preference" items not included in regular taxable income and reduced by
only a portion of the deductions allowed in the calculation of the regular
tax.
Interest on certain "private activity" bonds issued after August 7, 1986, is
treated as a tax preference item for both individuals and corporations.
Unlike traditional governmental purpose municipal bonds, which finance
roads, schools, libraries, prisons, and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase
all types of municipal bonds, including private activity bonds. Thus, should
it purchase any such bonds, a portion of the Fund's dividends may be treated
as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund
which represent interest on municipal bonds will become subject to the 20%
corporate alternative minimum tax because the dividends are included in a
corporation's "adjusted current earnings." The corporate alternative minimum
tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current
earnings" over the taxpayer's alternative minimum taxable income as a tax
preference item. "Adjusted current earnings" is based upon the concept of a
corporation's "earnings and profits." Since "earnings and profits" generally
includes the full amount of any Fund dividend, and alternative minimum
taxable income does not include the portion of the Fund's dividend
attributable to municipal bonds which are not private activity bonds, the
difference will be included in the calculation of the corporation's
alternative minimum tax.
Dividends of the Fund representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and
distributions is provided annually.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Ohio or from personal property taxes. 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 tax if such distributions qualify
as "exempt-interest dividends" under the Code, and represent (i) interest
from obligations of Ohio or its subdivisions which is exempt from federal
income tax; or (ii) interest or dividends from obligations issued by the
United States and its territories or possessions or by any authority,
commission or instrumentality of the United States which are exempt from
state income tax under federal laws. Conversely, to the extent that
distributions made by the Fund are derived from other types of obligations,
such dividends will be subject to Ohio individual income tax.
Distributions made by the Fund will not be subject to Ohio corporation
franchise tax if such distributions qualify as "exempt-interest dividends"
under the Code, and represent (i) interest from obligations of Ohio or its
subdivisions which is exempt from federal income tax; or (ii) net interest
income from obligations issued by the United States and its territories or
possessions or by any authority, commission or instrumentality of the United
States, which is included in federal taxable income and which the exempt
from state income tax under federal laws.
Exempt-interest dividends that represent interest from obligations held by
the Fund which are issued by the State of Ohio or its political subdivisions
will be exempt from any Ohio municipal income tax (even if the municipality
is permitted under Ohio law to levy a tax on intangible income).
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return, yield, and
tax-equivalent yield.
Total return represents the change, over a specific period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the shares of the Fund over a thirty-day period by the offering price per
share of the shares of the Fund on the last day of the period. This number
is then annualized using semi-annual compounding. 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 specific tax rate. The yield and the tax-equivalent yield
do not necessarily reflect income actually earned by the Fund and,
therefore, may not correlate to the dividends or other distributions paid to
shareholders.
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.
FEDERATED OHIO INTERMEDIATE MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS
MAY 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES--102.8%
OHIO--100.4%
$ 200,000 Akron, OH, Various Purpose LT GO, 5.50% (MBIA
INS), 12/1/2005 Aaa $ 205,434
200,000 Butler County, OH, Sewer System Revenue Bonds, 4.85%
(AMBAC INS), 12/1/2004 Aaa 198,558
350,000 Butler County, OH, Waterworks System Revenue Bonds
(Series 1996), 4.45% (AMBAC INS)/(Original Issue
Yield: 4.55%), 12/1/2004 Aaa 334,026
200,000 Cleveland, OH Airport System, Revenue Bonds
(Series A), 5.40% (FGIC INS)/(Original Issue
Yield: 5.55%), 1/1/2004 Aaa 203,536
250,000 Cleveland, OH, LT GO Bonds, 6.00% (MBIA INS)/
(Original Issue Yield: 6.10%), 11/15/2004 Aaa 266,973
500,000 Columbus, OH Municipal Airport Authority, Revenue
Bonds, 5.55% (Port Columbus Intl Airport )/(MBIA
INS)/(Original Issue Yield: 5.65%), 1/1/2004 Aaa 512,400
100,000 Columbus, OH Water System, Revenue Refunding
Bonds, 6.375%, 11/1/2010 AA- 104,184
150,000 Columbus, OH, LT GO Bonds, 5.50% (Original Issue
Yield: 5.55%), 5/15/2004 AA+ 155,616
350,000 Cuyahoga County, OH Hospital Authority, Improvement
& Refunding Revenue Bonds (Series A), 6.00%
(University Hospitals Health System, Inc.), 1/15/2004 AA 370,457
150,000 Findlay, OH Waterworks System, Refunding Revenue
Bonds (Series 1995), 4.55% (MBIA INS), 11/1/2000 Aaa 149,668
250,000 Franklin County, OH Mortgage Revenue, Mortgage
Revenue Bonds, 5.875% (Seton Square North, OH)/
(FHA GTD)/(Original Issue Yield: 6.00%), 10/1/2004 Aa 256,345
</TABLE>
FEDERATED OHIO INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES--CONTINUED
OHIO--CONTINUED
$ 300,000 Franklin County, OH, Hospital Refunding &
Improvement Revenue Bonds (1996 Series A), 5.20%
(Children's Hospital)/(Original Issue Yield: 5.30%),
11/1/2004 Aa $ 296,688
400,000 (b)Franklin County, OH, Hospital Revenue Bonds
(Series 1996), 5.50% (Holy Cross Health System
Corp.), 6/1/2004 AA 406,988
500,000 Hamilton County, OH Hospital Facilities Authority,
Refunding Revenue Bonds (Series 1992), 6.80%
(Episcopal Retirement Homes, Inc.)/(Fifth Third
Bank, Cincinnati LOC), 1/1/2008 Aa2 535,420
490,000 Hamilton County, OH Hospital Facilities Authority,
Revenue Refunding Bonds (Series A), 5.50%
(Bethesda Hospital, OH)/(Original Issue Yield:
5.65%), 1/1/2000 A1 498,408
200,000 Hamilton County, OH Sewer System, Improvement
& Revenue Refunding Bonds (Series A), 4.55%
(FGIC INS), 12/1/2000 Aaa 199,558
100,000 Kings Local School District, OH, UT GO Bonds,
6.25%, 12/1/2001 NR 106,738
100,000 Kings Local School District, OH, UT GO Bonds,
6.50%, 12/1/2003 NR 108,960
150,000 Miami Valley Regional Transit Authority, OH, LT
GO Bonds, 5.40%, 12/1/2004 A 152,917
300,000 Muskingum County, OH, (Series 1995) Hospital
Facilities Refunding Revenue Bonds, 5.10%
(Franciscan Sisters of Christian Charity HealthCare
Ministry, Inc.)/(Connie Lee INS)/(Original Issue
Yield: 5.30%), 2/15/2006 AAA 293,202
200,000 Muskingum County, OH, Hospital Facilities
Refunding & Improvement Bonds (Series 1996), 4.90%
(Bethesda Care System)/(Connie Lee INS), 12/1/2003 AAA 197,410
150,000 North Canton OH City School District, LT GO
Energy Conservation Bonds, 5.50%, 12/1/2003 A 153,608
</TABLE>
FEDERATED OHIO INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES--CONTINUED
OHIO--CONTINUED
$ 300,000 Ohio Enterprise Bond Fund, (Series 1995-3) State
Economic Development Revenue Bonds, 5.60%
(Smith Steelite), 12/1/2003 A- $ 297,255
150,000 Ohio HFA, Residential Mortgage Revenue Bonds
(Series A-1), 5.40% (GNMA COL), 3/1/2004 AAA 149,949
600,000 Ohio HFA, Residential Mortgage Revenue Bonds
(Series B-1), 5.80% (GNMA COL), 9/1/2005 AAA 607,734
400,000 Ohio State Building Authority, State Correctional
Facilities Revenue Refunding Bonds, Series A, 5.80%
(Original Issue Yield: 5.95%), 10/1/2006 A+ 416,208
250,000 Ohio State, UT GO Bonds, 5.60% (Original Issue
Yield: 5.65%), 8/1/2002 AA 261,430
250,000 Olentangy, OH Local School District, UT GO Bonds
(Series A), 5.60% (Original Issue Yield: 5.70%),
12/1/2004 AA- 258,798
195,000 Stow, OH, LT GO Safety Center Construction Bonds,
7.75%, 12/1/2003 A1 227,998
260,000 Summit County, OH, LT Various Purpose GO Bonds,
5.75% (AMBAC INS), 12/1/2005 Aaa 272,501
200,000 Toledo, OH Sewer System, Revenue Bonds, 5.75%
(AMBAC INS)/(Original Issue Yield: 5.85%),
11/15/2005 Aaa 209,116
Total 8,408,083
VIRGIN ISLANDS--2.4%
200,000 Virgin Islands HFA, SFM Revenue Refunding Bonds
(Series A), 5.70% (GNMA COL), 3/1/2004 AAA 200,874
TOTAL INTERMEDIATE-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $8,501,498) 8,608,957
</TABLE>
FEDERATED OHIO INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C>
SHORT-TERM MUNICIPAL SECURITIES--1.2%
PUERTO RICO--1.2%
$ 100,000 Puerto Rico Government Development Bank Weekly
VRDNs (Credit Suisse, Zurich LOC) AA+ $ 100,000
TOTAL SHORT-TERM MUNICIPAL SECURITIES
(AT AMORTIZED COST) 100,000
TOTAL INVESTMENTS (IDENTIFIED COST $8,601,498)(A) $8,708,957
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings. Current credit ratings are
unaudited.
(a) The cost of investments for federal tax purposes amounts to $8,601,498.
The net unrealized appreciation of investments on a federal tax basis
amounts to $107,459 which is comprised of $142,280 appreciation and $34,821
depreciation at May 31, 1996.
(b) Denotes when-issued security.
Note: The categories of investments are shown as a percentage of net assets
($8,375,277) at May 31, 1996.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
COL -- Collateralized
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
GNMA -- Government National Mortgage Association
GO -- General Obligation
GTD -- Guaranty
HFA -- Housing Finance Authority
INS -- Insured
LOC -- Letter of Credit
LT -- Limited Tax
MBIA -- Municipal Bond Investors Assurance
SFM -- Single Family Mortgage
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
FEDERATED OHIO INTERMEDIATE MUNICIPAL TRUST
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost
$8,601,498) $ 8,708,957
Cash 44,271
Income receivable 147,165
Deferred expenses 7,223
Total assets 8,907,616
LIABILITIES:
Payable for investments purchased $ 408,880
Payable for shares redeemed 89,748
Income distribution payable 24,015
Accrued expenses 9,696
Total liabilities 532,339
NET ASSETS for 859,178 shares outstanding $ 8,375,277
NET ASSETS CONSIST OF:
Paid in capital $ 8,473,458
Net unrealized appreciation of investments 107,459
Accumulated net realized loss on investments (205,640)
Total Net Assets $ 8,375,277
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$8,375,277 O 859,178 shares outstanding $9.75
(See Notes which are an integral part of the Financial Statements)
</TABLE>
FEDERATED OHIO INTERMEDIATE MUNICIPAL TRUST
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 376,238
EXPENSES:
Investment advisory fee $ 35,966
Administrative personnel and services fee 125,000
Custodian fees 18,033
Transfer and dividend disbursing agent fees and expenses 15,641
Directors'/Trustees' fees 3,130
Auditing fees 15,583
Legal fees 2,312
Portfolio accounting fees 48,077
Shareholder services fee 17,983
Share registration costs 20,541
Printing and postage 10,097
Insurance premiums 3,468
Taxes 171
Miscellaneous 10,153
Total expenses 326,155
Waivers and reimbursements --
Waiver of investment advisory fee $ (35,966)
Waiver of shareholder services fee (14,123)
Reimbursement of other operating expenses (243,379)
Total waivers and reimbursements (293,468)
Net expenses 32,687
Net investment income 343,551
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 47,388
Net change in unrealized appreciation of investments (101,917)
Net realized and unrealized loss on investments (54,529)
Change in net assets resulting from operations $ 289,022
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED OHIO INTERMEDIATE MUNICIPAL TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 343,551 $ 266,114
Net realized gain (loss) on investments ($14,757 and $179,063
net losses, respectively, as computed for federal tax purposes) 47,388 (196,543)
Net change in unrealized appreciation (depreciation) (101,917) 376,266
Change in net assets resulting from operations 289,022 445,837
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (343,551) (266,114)
SHARE TRANSACTIONS--
Proceeds from sale of shares 10,235,445 8,891,447
Net asset value of shares issued to shareholders in payment of
distributions declared 75,252 39,693
Cost of shares redeemed (8,487,981) (5,882,314)
Change in net assets resulting from share transactions 1,822,716 3,048,826
Change in net assets 1,768,187 3,228,549
NET ASSETS:
Beginning of period 6,607,090 3,378,541
End of period $ 8,375,277 $ 6,607,090
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED OHIO INTERMEDIATE MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996
(1) ORGANIZATION
Intermediate 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 three portfolios. The
financial statements included herein are only those of Federated Ohio
Intermediate Municipal Trust (the "Fund"), a non-diversified portfolio. The
financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is
limited to the portfolio in which shares are held. The investment objective
of the Fund is to provide current income exempt from federal regular income
tax and the personal income taxes imposed by the state of Ohio.
(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 -- Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk, credit
quality, coupon, maturity, type of issue, and any other factors or market
data the pricing service deems relevant. Short-term securities are valued at
the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value.
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 May 31, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $193,820, 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:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<C> <C>
2003 $179,063
2004 $ 14,757
Additionally, net capital losses of $11,820 attributable to security
transactions incurred after October 31, 1995 are treated as arising on the
first day of the Fund's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES -- The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement 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 May 31, 1996, 53% of
the securities in the portfolio of investments are backed by letters of
credit or bond insurance of various financial institutions and financial
guaranty assurance agencies. The value of investments insured by or
supported (backed) by a letter of credit from any one institution or agency
did not exceed 13% of total investments.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
<S> <C> <C>
Shares sold 1,037,604 941,647
Shares issued to shareholders in payment of distributions declared 7,616 4,237
Shares redeemed (861,086) (625,521)
Net change resulting from Fund share transactions 184,134 320,363
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.50% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund shares for the period.
The fee paid to FSS is used to finance certain services for shareholders and
to maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational and start-up administrative
service expenses of $23,676 and $31,506, respectively, were borne initially
by Adviser. The Fund has agreed to reimburse Adviser for the organizational
and start-up administrative expenses during the five-year period following
effective date. For the period ended May 31, 1996, the Fund paid $5,656 and
$7,526, respectively, pursuant to this agreement.
INTERFUND TRANSACTIONS -- During the period ended May 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $9,150,000 and $8,300,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1996, were as follows:
PURCHASES $ 5,508,085
SALES $ 3,309,627
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
INTERMEDIATE MUNICIPAL TRUST
(Federated Ohio Intermediate Municipal Trust):
We have audited the accompanying statement of assets and liabilities of
Federated Ohio Intermediate Municipal Trust (an investment portfolio of
Intermediate Municipal Trust, a Massachusetts business trust), including the
schedule of portfolio investments, as of May 31, 1996, 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 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 May 31, 1996, by correspondence with the custodian
and broker. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Federated Ohio Intermediate Municipal Trust, an investment portfolio of
Intermediate Municipal Trust, as of May 31, 1996, 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 financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
July 12, 1996
ADDRESSES
<TABLE>
<S> <S> <S>
Fund
Federated Ohio Intermediate Federated Investors Tower
Municipal Trust Pittsburgh, Pennsylvania 15222-3779
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
Transfer Agent and Dividend
Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
</TABLE>
[This Page Intentionally Left Blank]
Federated Ohio Intermediate
Municipal Trust
Prospectus
A Non-Diversified Portfolio of
Intermediate Municipal Trust,
An Open-End, Management
Investment Company
July 31, 1996
[Graphic]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 458810405
3081602A (7/96)
FEDERATED OHIO INTERMEDIATE MUNICIPAL TRUST
(A PORTFOLIO OF INTERMEDIATE MUNICIPAL TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Federated Ohio Intermediate Municipal Trust (the
`Fund''), a portfolio of Intermediate Municipal Trust (the
`Trust'') dated July 31, 1996. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by
calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated July 31, 1996
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 458810405
3081602B (7/96)
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Acceptable Investments 1
When-Issued and Delayed Delivery
Transactions 2
Temporary Investments 2
Portfolio Turnover 3
Investment Limitations 3
Investment Risks 4
MANAGEMENT OF INTERMEDIATE MUNICIPAL
TRUST 5
Officers and Trustees 5
Fund Ownership 9
Trustees' Compensation 9
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
Adviser to the Fund 10
Advisory Fees 10
OTHER SERVICES 11
Fund Administration 11
Custodian and Portfolio Accountants11
Transfer Agent 11
Independent Public Accountant 11
SHAREHOLDER SERVICES 11
BROKERAGE TRANSACTIONS 11
PURCHASING SHARES 12
Conversion to Federal Funds 12
DETERMINING NET ASSET VALUE 12
Valuing Municipal Bonds 12
Use of Amortized Cost 12
REDEEMING SHARES 12
Redemption in Kind 12
EXCHANGING SECURITIES FOR FUND SHARES13
Tax Consequences 13
MASSACHUSETTS PARTNERSHIP LAW 13
TAX STATUS 13
The Fund's Tax Status 13
Shareholders' Tax Status 13
TOTAL RETURN 14
YIELD 14
TAX-EQUIVALENT YIELD 14
Tax-Equivalency Table 14
PERFORMANCE COMPARISONS 16
Economic and Market Information 16
ABOUT FEDERATED INVESTORS 17
Mutual Fund Market 17
APPENDIX 18
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of Intermediate Municipal Trust (the "Trust"). The
Trust was established as a Massachusetts business trust under a Declaration
of Trust dated May 31, 1985. On September 1, 1993, the name of the Trust
was changed from `Federated Intermediate Municipal Trust'' to
`Intermediate Municipal Trust.'' On December 19, 1994, the name of the
Fund was changed from `Ohio Intermediate Municipal Trust'' to ``Federated
Ohio Intermediate Municipal Trust.''
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide current income which is
exempt from federal regular income tax and personal income taxes imposed by
the State of Ohio. The investment objective cannot be changed without
approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in a portfolio of municipal securities which are
exempt from federal regular income tax and Ohio state personal income
taxes. These securities include those issued by or on behalf of the State
of Ohio and Ohio municipalities, and those issued by states, territories,
and possessions of the United States which are exempt from both federal
regular income tax and Ohio state personal income taxes.
CHARACTERISTICS
The Ohio municipal securities in which the Fund invests have the
characteristics set forth in the prospectus.
An Ohio municipal security will be determined by the Fund's adviser to
meet the quality standards established by the Trust's Board of
Trustees (the "Trustees") if it is of comparable quality to municipal
securities within the Fund's rating requirements. The Trustees
consider the creditworthiness of the issuer of a municipal security,
the issuer of a participation interest if the Fund has the right to
demand payment from the issuer of the interest, or the guarantor of
payment by either of those issuers. The Fund is not required to sell a
municipal security if the security's rating is reduced below the
required minimum subsequent to its purchase by the Fund. The
investment adviser considers this event, however, in its determination
of whether the Fund should continue to hold the security in its
portfolio. If Moody's Investors Service, Inc., Standard & Poor's
Ratings Group or Fitch Investor Services, Inc. ratings change because
of changes in those organizations or in their rating systems, the Fund
will try to use comparable ratings as standards in accordance with the
investment policies described in the Fund's prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of Ohio municipal securities are:
omunicipal notes and municipal commercial paper;
oserial bonds sold with differing maturity dates;
otax anticipation notes sold to finance working capital needs of
municipalities;
obond anticipation notes sold prior to the issuance of long-term
bonds;
opre-refunded municipal bonds; and
ogeneral obligation bonds secured by a municipality pledge of
taxation.
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).
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the market value
of municipal securities from their original purchase prices.
Accordingly, as interest rates decrease or increase, the potential for
capital appreciation or depreciation is less for variable rate
municipal securities than for fixed income obligations. Many municipal
securities with variable interest rates purchased by the Fund are
subject to repayment of principal (usually within seven days) on the
Fund's demand. The terms of these variable rate demand instruments
require payment of principal and accrued interest from the issuer of
the municipal obligations, the issuer of the participation interests,
or a guarantor of either issuer.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of
participation interests which represent undivided proportional
interests in lease payments by a governmental or non-profit entity.
The lease payments and other rights under the lease provide for and
secure the payments on the certificates. Lease obligations may be
limited by municipal charter or the nature of the appropriation for
the lease. In particular, lease obligations may be subject to periodic
appropriation. If the entity does not appropriate funds for future
lease payments, the entity cannot be compelled to make such payments.
Furthermore, a lease may provide that the certificate trustee cannot
accelerate lease obligations upon default. The trustee would only be
able to enforce lease payments as they became due. In the event of a
default or failure of appropriation, it is unlikely that the trustee
would be able to obtain an acceptable substitute source of payment.
In determining the liquidity of municipal lease securities, the Fund's
investment adviser, under the authority delegated by the Trustees,
will base its determination on the following factors;
owhether the lease can be terminated by the lessee;
othe potential recovery, if any, from a sale of the leased property
upon termination of the lease;
othe lessee's general credit strength (e.g., its debt,
administrative, economic and financial characteristics and
prospects);
othe 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
oany credit enhancement or legal recourse provided upon an event of
non-appropriation or other termination of the lease.
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 may engage in when-issued and delayed delivery transactions to an
extent that would cause the segregation of an amount up to 20% of the total
value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments during times of unusual
market conditions for defensive purposes.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or certificates of deposit to the Fund and agree at the
time of sale to repurchase them at a mutually agreed upon time and
price within one year from the date of acquisition. The Fund or its
custodian will take possession of the securities subject to repurchase
agreements. 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 may only enter into repurchase agreements
with banks and other recognized financial institutions such as
broker/dealers which are found 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 to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future, the Fund will
repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not
ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated on the Fund's records at
the trade date. These assets are marked to market daily and are
maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered
necessary to meet its investment objective. For the year ended May 31, 1996
and 1995, the portfolio turnover rates for the Fund were 46% and 56%,
respectively.
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 purchases and sales of securities.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its total assets, including the amounts
borrowed.
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its assets except
to secure permitted borrowings. In those cases, it may mortgage,
pledge, or hypothecate assets having a market value not exceeding 10%
of the value of its total assets at the time of the pledge.
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 REAL ESTATE
The Fund will not purchase or sell real estate or invest in real
estate limited partnerships, although it may invest in municipal bonds
secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not buy or sell commodities, commodity contracts, or
commodities futures contracts.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or non-publicly issued municipal bonds or temporary
investments or enter into repurchase agreements in accordance with its
investment objective, policies, and limitations or its Declaration of
Trust.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would be
invested in any one industry or in industrial development bonds or
other securities, the interest upon which is paid from revenues of
similar types of projects. However, the Fund may invest as temporary
investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, or instruments secured by these money
market instruments, i.e., 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, or other acquisition.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES
OF THE TRUST
The Fund will not purchase or retain the securities of any issuer if
the officers and Trustees of the Trust or its investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in securities
which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice, and certain
restricted securities not determined by the Trustees to be liquid.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets
in industrial development bonds 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 MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest
in securities of issuers which invest in or sponsor such programs.
In addition, to comply with investment restrictions of a certain state, the
Fund will not invest in real estate limited partnerships.
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.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."
INVESTMENT RISKS
The economy of the State of Ohio is reliant in part on durable goods
manufacturing, largely concentrated in motor vehicles and equipment, steel,
rubber products and household appliances. During the past decade,
competition in various industries in the State of Ohio has changed from
being domestic to international in nature. In addition, these industries
may be characterized as having excess capacity in particular product
segments. The steel industry, in particular, and the automobile industry,
to a lesser extent, share these characteristics. Because the State of Ohio
and certain underlying municipalities have large exposure to these
industries and their respective aftermarkets, trends in these industries
may, over the long term, impact the demographic and financial position of
the State of Ohio and its municipalities. To the degree that domestic
manufacturers in industries to which Ohio municipalities have exposure fail
to make competitive adjustments, employment statistics and disposable
income of residents in Ohio may deteriorate, possibly leading to population
declines and erosion of municipality tax bases.
Both the economic trends above and the political climate in various
municipalities may have contributed to the decisions of various businesses
and individuals to relocate outside the State. A municipality's political
climate in particular may affect its own credit standing. For both the
State of Ohio and underlying Ohio municipalities, adjustment of credit
ratings by the rating agencies may affect the ability to issue securities
and thereby affect the supply of obligations meeting the quality standards
for investment by the Fund.
The State ended fiscal year 1993 with a positive budgetary fund balance of
over $100 million. The 1994-1995 biennial budget was formulated with
reasonable revenue assumptions. The State implemented a revenue enhancement
package in January of 1993 that increased the cigarette tax and the income
tax bracket for incomes over $200,000, broadened the sales tax base and
capped tax distributions to local governments. These and other minor
revenue enhancements are budgeted to add $912 million of additional revenue
to the 1994-1995 biennial budget. The State's fund balance reserve levels
continue to be minimal but the State has demonstrated its ability to manage
with limited financial flexibility.
The State has established procedures for municipal fiscal emergencies under
which joint state/local commissions are established to monitor the fiscal
affairs of a financially troubled municipality. When these procedures are
invoked, the municipality must develop a financial plan to eliminate
deficits and cure any defaults. Since their adoption in 1979, these
procedures have been applied to approximately twenty-one cities and
villages, including the City of Cleveland; in sixteen of these communities,
the fiscal situation has been resolved and the procedures terminated.
The foregoing discussion only highlights some of the significant financial
trends and problems affecting the State of Ohio and underlying
municipalities.
MANAGEMENT OF INTERMEDIATE MUNICIPAL TRUST
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, birthdates, present
positions with Intermediate 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.; 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.
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.
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 or Trustee 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 or Trustee 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 or Trustee 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 or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine 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 or Trustee 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 or Trustee of the Funds; formerly, Counsel, Horizon Financial,
F.A., Western Region.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director
or Trustee 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 or
Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics 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 or Trustee 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 or Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the 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 Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President, Secretary
and Treasurer of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board between meetings of
the Board.
As 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 Group of
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: 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; Federated
Insurance Series; 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 Obligation;
The Virtus Funds; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of July 5, 1996, the following shareholders of record owned 5% or more
of the outstanding Shares of the Fund: Mahco, Youngstown, Ohio, owned
approximately 48,340 Shares (5.47%); Parcol & Co., Akron, Ohio, owned
approximately 60,630 Shares (6.86%); Grand Old Co., Zainesville, Ohio,
owned approximately 54,573 Shares (6.18%); Defco, Defiance, Ohio, owned
approximately 219,456 Shares (24.84%); Lorban & Company, Elyria, Ohio,
owned approximately 49,002 Shares (5.55%); National Financial Services, New
York, New York, owned approximately 99,278 Shares (11.24%); Federated
Management Co., Pittsburgh, Pennsylvania, owned approximately 54,593 Shares
(6.18%); Federated Securities Corp., Pittsburgh, Pennsylvania, owned
approximately 44,353 Shares (5.02%); and Holdon, Findlay, Ohio, owned
approximately 104,561 Shares (11.83%).
TRUSTEES' COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST *# FROM FUND COMPLEX +
JOHN F. DONAHUE $0 $ 0 FOR THE TRUST AND
CHAIRMAN AND TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND
COMPLEX
THOMAS G. BIGLEY,++ $552.58 $86,331 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
JOHN T. CONROY, JR., $600.35 $115,760 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
WILLIAM J. COPELAND, $600.35 $115,760 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
JAMES E. DOWD, $600.35 $115,760 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
LAWRENCE D. ELLIS, M.D., $552.58 $104,898 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
EDWARD L. FLAHERTY, JR., $600.35 $115,760 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
GLEN R. JOHNSON $ 0 $ 0 FOR THE TRUST AND
PRESIDENT AND TRUSTEE 9 OTHER INVESTMENT COMPANIES IN THE FUND
COMPLEX
PETER E. MADDEN, $552.58 $104,898 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
GREGOR F. MEYER, $552.58 $104,898 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
JOHN E. MURRAY, JR., $552.58 $104,898 FOR THE TRUST AND
++
Mr. Bigley served on 39 investment companies in the Federated Funds Complex
from January 1 through September 30, 1995. On October 1,
1995, he was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
WESLEY W. POSVAR,$552.58 $104,898 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
MARJORIE P. SMUTS, $552.58 $104,898 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
*Information is furnished for the fiscal year ended May 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
three 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 judgement or mistakes of fact or law. However, they
are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management (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
Fund.
ADVISORY FEES
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectus.
For the years ended May 31, 1996, 1995, and the period from December 2,
1993 (date of initial public investment) to May 31, 1994, the Adviser
earned advisory fees of $35,966, $26,346 and $6,929, respectively, all of
which was voluntarily waived. In addition, the Adviser reimbursed other
operating expenses of $243,379, $226,561 and $35,630, respectively.
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 2.5% per year of the first $30 million of average net
assets, 2% per year of the next $70 million of average net assets, and
1.5% per year of the remaining average net assets, the Adviser will
reimburse the Trust for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser
will be limited, in any single fiscal year, by the amount of the
investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's administrator. Prior to March
1, 1994 Federated Administrative Sevices, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the "Administrators." For the fiscal years ended May 31, 1996, 1995, and
the period from December 2, 1993 (date of initial public investment) to May
31, 1994, the Administrators earned $125,000, $125,000, and $1,225,
respectively, none of which was waived. Dr. Henry 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 Services Company.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is custodian
for the securities and cash of the Fund. Federated Services Company,
Pittsburgh, Pennsylvania, provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments. The fee paid
for this service is based upon the level of the Fund's average net assets
for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based upon 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, Pennsylvania.
SHAREHOLDER SERVICES
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
to maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that
the Fund will benefit by: (1) providing personal services to shareholders;
(2) investing shareholder assets with a minimum of delay and administrative
detail; (3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their accounts.
For the fiscal year ending May 31, 1996, the Fund paid $17,983 pursuant to
the Shareholder Services Agreement of which $14,123 was waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The Adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the
Fund or to the Adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the Adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the Adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The Adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal year(s) ended May 31, 1996, 1995, and
the period from December 2, 1993 (date of initial public investment) to May
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.
PURCHASING SHARES
Except under certain circumstances described in the prospectus, shares are
sold at their net asset value on days the New York Stock Exchange is open
for business. The procedure for purchasing shares is explained in the
prospectus under "Investing in the Fund."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. Federated Services Company acts as the
shareholder's agent in depositing checks and converting them to federal
funds.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the prospectus.
VALUING MUNICIPAL BONDS
The Trustees use an independent pricing service to value municipal bonds.
The independent pricing service takes into consideration yield, stability,
risk, quality, coupon rate, maturity, type of issue, trading
characteristics, special circumstances of a security or trading market, and
any other factors or market data it considers relevant in determining
valuations for normal institutional size trading units of debt securities,
and does not rely exclusively on quoted prices.
USE OF AMORTIZED COST
The Trustees have decided that the fair value of debt securities authorized
to be purchased by the Fund with remaining maturities of 60 days or less at
the time of purchase, shall be their amortized cost value, unless the
particular circumstances of the security indicate otherwise. Under this
method, portfolio instruments and assets are valued at the acquisition cost
as adjusted for amortization of premium or accumulation of discount rather
than at current market value. The Executive Committee continually assesses
this method of valuation and recommends changes where necessary to assure
that the Fund's portfolio instruments are valued at their fair value as
determined in good faith by the Trustees.
REDEEMING SHARES
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although State Street Bank does not
charge for telephone redemptions, it reserves the right to charge a fee for
the cost of wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in a
manner the Trustees determine to be fair and equitable.
The Fund has elected to be governed by Rule 18f-1 of the Investment Company
Act of 1940, as amended, under which the Trust is obligated to redeem
shares for any one shareholder in cash only up to the lesser of $250,000 or
1% of the Fund's net asset value during any 90-day period.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange municipal securities they already own for shares or
they may exchange a combination of municipal securities and cash for
shares. An investor should forward the securities in negotiable form with a
letter of transmittal and authorization to Federated Securities Corp. The
Fund will notify the investor of its acceptance and valuation of the
securities within five business days of their receipt by State Street Bank.
The Fund values securities in the same manner as the Fund values its
assets. The basis of the exchange will depend upon the net asset value of
Fund 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 Trust, along with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the cost basis of the securities exchanged for
shares, a gain or loss may be realized by the investor.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust on
behalf of the Fund. To protect shareholders of the Fund, the Trust has
filed legal documents with Massachusetts that expressly disclaim the
liability of shareholders of the Fund for such acts or obligations of the
Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument that the Trust or its Trustees
enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable
for the Trust's obligations on behalf of the Fund, the Trust is required to
use the property of the Fund to protect or compensate the shareholder. On
request, the Trust will defend any claim made and pay any judgment against
a shareholder of the Fund for any act or obligation of the Trust on behalf
of the Fund. Therefore, financial loss resulting from liability as a
shareholder of the Fund will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from
the assets of the Fund.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. To qualify for this
treatment, the Fund must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the sale of
portfolio securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because of:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or
oan attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such, whether
they are taken in cash or reinvested, and regardless of the length of
time the shareholder has owned shares. Any loss by a shareholder on
Fund shares held for less than six months and sold after a capital
gains distribution will be treated as a long-term capital loss to the
extent of the capital gains distribution.
TOTAL RETURN
The Fund's average annual total returns for the one-year ended May 31, 1996
and for the period from December 2, 1993 (date of initial public
investment) to May 31, 1996 were 4.41% and 3.86%, respectively.
The average annual total return for the Fund 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.
YIELD
The Fund's yield for the thirty-day period ended May 31, 1996 was 4.91%.
The yield of the Fund is determined by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the maximum offering price per share
on the last day of the period. This value is then annualized using semi-
annual compounding. This means that the amount of income generated during
the thirty-day period is assumed to be generated each month over a twelve-
month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by the Fund because of certain
adjustments required by the Securities and Exchange Commission and,
therefore, may not correlate to the dividends or other distributions paid
to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, performance will be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
The Fund's tax-equivalent yield for the thirty-day period ended May 31,
1996, was 9.28%.
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 47.10% combined Federal and
State tax rate and assuming that income is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal obligations in the Fund's
portfolio generally remains free from federal regular income tax* and is
free from the income taxes imposed by the State of Ohio (some portion of
the Fund's income may be subject to the federal alternative minimum tax and
state and local taxes). As the table below indicates, a "tax-free"
investment is an attractive choice for investors, particularly in times of
narrow spreads between "tax-free" and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF 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- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.86% 2.25% 2.42% 2.65% 2.84%
2.00% 2.48% 2.99% 3.22% 3.54% 3.78%
2.50% 3.10% 3.74% 4.03% 4.42% 4.73%
3.00% 3.72% 4.49% 4.83% 5.31% 5.67%
3.50% 4.35% 5.24% 5.64% 6.19% 6.62%
4.00% 4.97% 5.99% 6.44% 7.08% 7.56%
4.50% 5.59% 6.74% 7.25% 7.96% 8.51%
5.00% 6.21% 7.49% 8.05% 8.85% 9.45%
5.50% 6.83% 8.23% 8.86% 9.73% 10.40%
6.00% 7.45% 8.98% 9.66% 10.62% 11.34%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were not
used to increase federal deductions.
TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF OHIO
FEDERAL TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE TAX BRACKET:
20.201% 34.900% 37.900% 43.500% 47.100%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.88% 2.30% 2.42% 2.65% 2.84%
2.00% 2.51% 3.07% 3.22% 3.54% 3.78%
2.50% 3.13% 3.84% 4.03% 4.42% 4.73%
3.00% 3.76% 4.61% 4.83% 5.31% 5.67%
3.50% 4.39% 5.38% 5.64% 6.19% 6.62%
4.00% 5.01% 6.14% 6.44% 7.08% 7.56%
4.50% 5.64% 6.91% 7.25% 7.96% 8.51%
5.00% 6.27% 7.68% 8.05% 8.85% 9.45%
5.50% 6.89% 8.45% 8.86% 9.73% 10.40%
6.00% 7.52% 9.22% 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.
PERFORMANCE COMPARISONS
The performance of the Fund depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings
and offering price per share are factors in the computation of yield and
total return as described above.
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 by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in net asset value over a specific period of time. From time to time,
the Fund will quote its Lipper ranking in the "other states
intermediate municipal debt funds" category in advertising and sales
literature.
o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
o LEHMAN BROTHERS FIVE-YEAR STATE GENERAL OBLIGATION BONDS is an index
comprised of all state general obligation debt issues with maturities
between four and six years. These bonds are rated A or better and
represent a variety of coupon ranges. Index figures are total returns
calculated for one, three and twelve month periods as well as year-to-
date. Total returns are also calculated as of the index inception
December 31, 1979.
o LEHMAN BROTHERS TEN-YEAR STATE GENERAL OBLIGATION BONDS is an index
comprised of the same issues noted above except that the maturities
range between nine and eleven years. Index figures are total returns
calculated for the same periods as listed above.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. The total
returns represent the historic change in the value of an investment in the
Fund based on monthly reinvestment of dividends over a specified period of
time.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns in general, that demonstrate
basic investment concepts such as tax-deferred compounding, dollar-cost
averaging and systematic investment. In addition, the Fund can compare its
performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Fund. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the municipal sector, as of December 31, 1995, Federated Investors
managed 12 bond funds with approximately $2.0 billion in assets and 20
money market funds with approximately $7.8 billion in total assets. In
1976, Federated introduced one of the first municipal bond mutual funds in
the industry and is now one of the largest institutional buyers of
municipal securities. The Fund may quote statistics from organizations
including The Tax Foundation and the National Taxpayers Union regarding the
tax obligations of Americans.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and
high yield corporate bond management while William D. Dawson, Executive
Vice President, oversees Federated's domestic fixed income management.
Henry A. Frantzen, Executive Vice President, oversees the management of
Federated'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 $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of applications, including defined benefit and
defined contribution programs, cash management, and asset/liability
management. Institutional clients include corporations, pension
funds, tax-exempt entities, foundations/endowments, insurance companies,
and investment and financial advisors. The marketing effort to these
institutional clients is headed by John B. Fisher, President,
Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust
divisions of the top 100 bank holding companies use Federated funds in
their clients' portfolios. The marketing effort to trust clients is
headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing
& Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage
firms nationwide--including 200 New York Stock Exchange firms--supported
by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has
earned it high rankings in several DALBAR Surveys. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer
Division.
* SOURCE: Investment Company Institute
APPENDIX
STANDARD AND POOR'S RATINGS GROUP (`S&P'') MUNICIPAL BOND 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 rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
NR--Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate or municipal bond rating
system. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end
of its generic rating category.
FITCH INVESTORS SERVICE, INC. INVESTMENT GRADE BOND RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+".
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the "AAA" category.
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL NOTE RATINGS
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.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM LOAN RATINGS
MIG1/VMIG1--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/VMIG2--This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
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 for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-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:
o leading market positions in well-established industries;
o high rates of return on funds employed;
o conservative capitalization structure with moderate reliance on debt
and ample asset protection;
o broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o well-established access to a range of financial markets and assured
sources of alternative liquidity.
PRIME-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.
FEDERATED PENNSYLVANIA INTERMEDIATE MUNICIPAL TRUST
(A PORTFOLIO OF INTERMEDIATE MUNICIPAL TRUST)
PROSPECTUS
The shares of Federated Pennsylvania Intermediate Municipal Trust (the
"Fund") offered by this prospectus represent interests in a non-diversified
portfolio of securities of Intermediate Municipal Trust (the "Trust"), an
open-end management investment company (a mutual fund).
The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax and the personal income taxes imposed
by the Commonwealth of Pennsylvania. The Fund invests primarily in a
portfolio of Pennsylvania municipal securities, including securities of
states, territories, and possessions of the United States which are not
issued by or on behalf of the Commonwealth of Pennsylvania or its political
subdivisions, but which are exempt from federal regular income tax and
Pennsylvania state personal income taxes.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT 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 the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information, dated July
31, 1996, 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
1-800-341-7400. To obtain other information or to make inquiries about the
Fund, contact the Fund at the address listed in the back of this prospectus.
The Statement of Additional Information, material incorporated by reference
into this document, and other information regarding the Fund is maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION 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 July 31, 1996
Table of Contents
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Pennsylvania Municipal Securities 6
Investment Risks 6
Non-Diversification 6
Investment Limitations 7
INTERMEDIATE MUNICIPAL TRUST INFORMATION
7
Management of the Trust 7
Distribution of Fund Shares 8
Administration of the Fund 9
NET ASSET VALUE 9
INVESTING IN THE FUND 10
Share Purchases 10
Minimum Investment Required 10
What Shares Cost 10
Exchanging Securities for Fund Shares 11
Certificates and Confirmations 11
Dividends 11
Capital Gains 11
REDEEMING SHARES 11
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 12
Voting Rights 12
TAX INFORMATION 13
Federal Income Tax 13
State and Local Taxes 14
PERFORMANCE INFORMATION 14
FINANCIAL STATEMENTS 15
REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS 29
ADDRESSES 30
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
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
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.00%
12b-1 Fee None
Total Other Expenses (after expense reimbursement) 0.45%
Shareholder Services Fee (after waiver)(2) 0.11%
Total Operating Expenses(3) 0.45%
</TABLE>
(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 in the table above are based on expenses
expected during the fiscal year ending May 31, 1997. The total operating
expenses were 0.45% for the fiscal year ended May 31, 1996 and would have
been 3.14% absent the voluntary waiver of the management fee, a portion of
the shareholder services fee and the voluntary reimbursement of certain
other operating expenses.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs
and expenses, see "Investing in the Fund" and "Intermediate Municipal Trust
Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period. $5 $14 $25 $57
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FEDERATED PENNSYLVANIA INTERMEDIATE MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 29.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.06 $ 9.85 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.49 0.48 0.23
Net realized and unrealized gain (loss) on investments (0.06) 0.21 (0.15)
Total from investment operations 0.43 0.69 0.08
LESS DISTRIBUTIONS
Distributions from net investment income (0.49) (0.48) (0.23)
NET ASSET VALUE, END OF PERIOD $10.00 $ 10.06 $ 9.85
TOTAL RETURN(B) 4.27% 7.35% 0.76%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.45% 0.45% 0.25%*
Net investment income 4.81% 5.11% 4.76%*
Expense waiver/reimbursement(c) 2.69%(d) 3.95% 5.06%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $15,054 $8,344 $2,881
Portfolio turnover 11% 41% 39%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 5, 1993 (date of
initial public investment) to May 31, 1994.
(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.
(d) For the years ended May 31, 1996, and May 31, 1995, the adviser waived
$45,372 and $32,714, respectively, of the investment advisory fee, which
represents 0.40% and 0.50% of average net assets, and for the year ended May
31, 1995, the Adviser reimbursed other operating expenses of $86,896, which
represents 1.33% of average net assets, to comply with certain state expense
limitations. The remainder of the waiver/reimbursement is voluntary. The
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)
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended May 31, 1996, which can be obtained
free of charge.
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated May 31, 1985. The Declaration of Trust permits
the Trust to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities. The shares in
any one portfolio may be offered in separate classes.
Shares of the Fund are designed for the investment of monies generally held
by financial institutions in a fiduciary capacity. A minimum initial
investment of $25,000 over a 90-day period is required. The Fund may not be
a suitable investment for non-Pennsylvania taxpayers or retirement plans
since Pennsylvania municipal securities are not likely to produce
competitive after-tax yields for such persons and entities when compared to
other investments.
Shares are sold and redeemed at net asset value without a sales charge
imposed by the Fund.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt
from federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania. Interest income of the Fund that is exempt
from federal regular income tax and Pennsylvania state personal income tax
retains its tax-free status when distributed to the Fund's shareholders. The
Fund pursues its investment objective by investing at least 80% of its net
assets in a non-diversified portfolio of Pennsylvania municipal securities.
The portfolio has a dollar-weighted average maturity of not less than three
or more than ten years. While there is no assurance that the Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus. The investment objective
and the policy stated above cannot be changed without approval of
shareholders.
INVESTMENT POLICIES
The investment policies described below may be changed by the Board of
Trustees (the "Trustees") without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Pennsylvania municipal securities in which the
Fund invests are:
* obligations issued by or on behalf of the Commonwealth of Pennsylvania,
its political subdivisions, or agencies;
* debt obligations of any state, territory, or possession of the United
States, or any political subdivision of any of these; and
* participation interests, as described below, in any of the above
obligations,
the interest from which is, in the opinion of bond counsel for the issuers
or in the opinion of officers of the Fund and/or the investment adviser to
the Fund, exempt from both federal regular income tax and the personal
income taxes imposed by the Commonwealth of Pennsylvania.
The prices of fixed income securities fluctuate inversely to the direction
of interest rates.
AVERAGE MATURITY. The dollar-weighted average maturity of the Fund's
portfolio of Pennsylvania municipal securities will not be less than three
years or more than ten years. For purposes of determining the
dollar-weighted average maturity of the Fund's portfolio, the maturity of a
municipal security will be its ultimate maturity, unless it is probable that
the issuer of the security will take advantage of maturity-shortening
devices such as a call, refunding, or redemption provision, in which case
the maturity date will be the date on which it is probable that the security
will be called, refunded, or redeemed. If the municipal security includes
the right to demand payment, the maturity of the security for purposes of
determining the Fund's dollar-weighted average portfolio maturity will be
the period remaining until the principal amount of the security can be
recovered by exercising the right to demand payment.
CHARACTERISTICS. The municipal securities in which the Fund invests are:
* rated within the three highest ratings for municipal securities by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa, or A), Standard & Poor's
Ratings Group ("S&P") (AAA, AA, or A), or Fitch Investors Service, Inc.
("Fitch") (AAA, AA, or A);
* guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest;
* fully collateralized by an escrow of U.S. government securities or other
securities acceptable to the Fund's adviser;
* rated at the time of purchase within Moody's highest short-term municipal
obligation rating (MIG1/VMIG1) or Moody's highest municipal commercial paper
rating (PRIME-1) or S&P's highest municipal commercial paper rating (SP-1);
* unrated if, at the time of purchase, other municipal securities of that
issuer are rated A or better by Moody's, S&P, or Fitch; or
* unrated if determined to be of equivalent quality to one of the foregoing
rating categories by the Fund's investment adviser.
If a security is subsequently downgraded, the adviser will determine whether
it continues to be an acceptable investment; if not, the security will be
sold. A description of the rating categories is contained in the Appendix to
the Statement of Additional Information.
PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings associations, and
insurance companies. These participation interests give the Fund an
undivided interest in Pennsylvania municipal securities. The financial
institutions from which the Fund purchases participation interests
frequently provide or secure irrevocable letters of credit or guarantees to
assure that the participation interests are of high quality.
The Trustees will determine whether participation interests meet the
prescribed quality standards for the Fund.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the Pennsylvania municipal
securities which the Fund purchases may have variable interest rates.
Variable interest rates are ordinarily stated as a percentage of a published
interest rate, interest rate index, or a similar standard, such as the
91-day U.S. Treasury bill rate. Many variable rate municipal securities are
subject to payment of principal on demand by the Fund in not more than seven
days. All variable rate municipal securities will meet the quality standards
for the Fund. The Fund's investment adviser has been instructed by the
Trustees to monitor the pricing, quality, and liquidity of the variable rate
municipal securities, including participation interests held by the Fund on
the basis of published financial information and reports of the rating
agencies and other analytical services.
MUNICIPAL LEASES. Also included within the general category of municipal
securities are certain lease obligations or installment purchase contract
obligations and participations therein (hereinafter collectively referred to
as "lease obligations") of municipal authorities or entities. Although lease
obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to budget for, appropriate,
and make the payments due under the lease obligation. Interest on lease
obligations is tax-exempt to the same extent as if the municipality had
issued debt obligations to finance the underlying project or purchase.
However, certain lease obligations contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such
purpose on a yearly basis. In addition to the "non-appropriation" risk,
these securities represent a relatively new type of financing that has not
yet developed the depth of marketability associated with more conventional
bonds, and some lease obligations may be illiquid. Although
"non-appropriation" lease obligations are generally secured by the leased
property, disposition of the property in the event of foreclosure might
prove difficult. In addition, the tax treatment of such obligations in the
event of "non-appropriation" is unclear. The Fund does not intend to invest
more than 10% of its total assets in lease obligations that contain
"non-appropriation" clauses.
If the Fund purchases unrated municipal leases, the Trustees will be
responsible for determining, on an ongoing basis, the credit quality of such
leases and the likelihood that such leases will not be cancelled.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
Pennsylvania municipal 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.
TEMPORARY INVESTMENTS. The Fund normally invests its assets in Pennsylvania
municipal securities, as described above. However, from time to time, when
the investment adviser determines that market conditions call for a
temporary defensive posture, the Fund may invest in short-term
non-Pennsylvania municipal tax-exempt obligations or taxable temporary
investments. These temporary investments include: notes issued by or on
behalf of municipal or corporate issuers; obligations issued or guaranteed
by the U.S. government, its agencies, or instrumentalities; other debt
securities; commercial paper; certificates of deposit of banks; and
repurchase agreements (arrangements in which the organization selling the
Fund a bond or temporary investment agrees at the time of sale to repurchase
it at a mutually agreed upon time and price).
There are no rating requirements applicable to temporary investments with
the exception of temporary municipal securities which are subject to the
same rating requirements as all other municipal securities in which the Fund
invests. However, the investment adviser will limit temporary investments to
those it considers to be of comparable quality to the acceptable investments
of the Fund.
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention of generating income subject to federal regular
income tax or Pennsylvania state personal income 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 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. However, interest on and principal of
revenue bonds 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, but not limited to: the general conditions of the municipal bond
market; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. Further, any adverse economic
conditions or developments affecting the Commonwealth of Pennsylvania or its
municipalities could impact the Fund's portfolio. The ability of the Fund to
achieve its investment objective also depends on the continuing ability of
the issuers of Pennsylvania municipal securities and participation
interests, or the guarantors of either, to meet their obligations for the
payment of interest and principal when due. Investing in Pennsylvania
municipal securities which meet the Fund's quality standards may not be
possible if the Commonwealth of Pennsylvania or its municipalities do not
maintain their current credit ratings. In addition, any Pennsylvania
constitutional amendments, legislative measures, executive orders,
administrative regulations, or voter initiatives could result in adverse
consequences affecting Pennsylvania municipal securities.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no
limit on the percentage of assets which can be invested in any single
issuer. An investment in the Fund, therefore, will entail greater risk than
would exist in a diversified portfolio of securities 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 was diversified among more
issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code,
as amended. This undertaking requires that at the end of each quarter of the
taxable year, with regard to at least 50% of the Fund's total assets, no
more than 5% of its total assets are invested in the securities of a single
issuer; beyond that, no more than 25% of its total assets are invested in
the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a portfolio instrument for
a percentage of its cash value with an arrangement 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 10%
of the value of total assets to secure such borrowings. The Fund does not
intend to engage in any borrowing during the coming fiscal year.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
In order to pass-through to investors the tax-free income from the Fund for
purposes of Pennsylvania state personal income taxes, 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) reinvest the earnings from securities in like securities;
or (iv) defray normal administrative expenses (the "Pennsylvania Investment
Restrictions"). Legislation enacted in December 1993, eliminates the
necessity of the Pennsylvania Investment Restrictions. Consequently, the
Trustees may vote to eliminate the Pennsylvania Investment Restrictions.
The Fund will not invest more than 15% of its net assets in securities which
are illiquid, including repurchase agreements providing for settlement in
more than seven days after notice, and restricted securities determined by
the Trustees not to be liquid.
INTERMEDIATE MUNICIPAL TRUST INFORMATION
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. 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. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the
Trust, investment decisions for the Fund are made by Federated Management,
the Fund's investment adviser, subject to direction by the Trustees. The
adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments,
for which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory fee
equal to .50% of 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.
Also, the adviser may voluntarily choose to waive a portion of its fee or
reimburse other expenses of the Fund, but reserves the right to terminate
such waiver or reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940, as amended. It is a subsidiary of Federated
Investors. All of the Class A (voting) shares of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, Chairman and
Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son,
J. Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees and could result in severe penalties.
PORTFOLIO MANAGER'S BACKGROUND. J. Scott Albrecht has been the Fund's
portfolio manager since the Fund's inception. Mr. Albrecht joined Federated
Investors in 1989 and has been a Vice President of the Fund's investment
adviser since 1994. From 1992 to 1994, Mr. Albrecht served as an Assistant
Vice President of the Fund's investment adviser. In 1991, Mr. Albrecht acted
as an investment analyst. Mr. Albrecht is a Chartered Financial Analyst and
received his M.S. in Public Management from Carnegie Mellon University.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund. Federated Services Company provides these at an annual
rate which relates to the average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS
<C> <S>
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to .25% of the average
daily net asset value of the Fund shares, computed at an annual rate, to
obtain certain personal services for shareholders and to maintain
shareholder accounts. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily. Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions
to perform shareholder services. Financial institutions will receive fees
based upon shares owned by their clients or customers. The schedules of such
fees and the basis upon which such fees will be paid will be determined from
time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Shareholder Services Agreement, Federated Securities
Corp. and Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder
services. The support may include sponsoring sales, educational and training
seminars for their employees, providing sales literature, and engineering
computer software programs that emphasize the attributes of the Fund. Such
assistance 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.
NET ASSET VALUE
The Fund's net asset value per share fluctuates. It is determined by
dividing the sum of all securities and other assets, less liabilities, by
the number of shares outstanding.
INVESTING IN THE FUND
SHARE PURCHASES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open for business. Shares may be purchased either by wire or mail. The Fund
reserves the right to reject any purchase request.
To purchase shares of the Fund, open an account by calling Federated
Securities Corp. Information needed to establish the account will be taken
over the telephone.
BY WIRE. To purchase shares of the Fund by Federal Reserve wire, call the
Fund before 1:00 p.m. (Eastern time) to place an order. The order is
considered received immediately. Payment by federal funds must be received
before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as
follows: Federated Shareholder Services Company, c/o State Street Bank and
Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
Federated Pennsylvania Intermediate Municipal 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.
BY MAIL. To purchase shares of the Fund by mail, send a check made payable
to Federated Pennsylvania Intermediate Municipal Trust to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. Orders by mail are considered received when payment by check is
converted by State Street Bank and Trust Company ("State Street Bank") into
federal funds. This is normally the next business day after State Street
Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $25,000, plus any financial
intermediary fee, if applicable. However, an account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days. An
institutional investor's minimum investment will be calculated by combining
all accounts it maintains with the Fund.
Individual accounts established through a financial intermediary may be
subject to a different minimum investment requirement.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who
purchase shares through a financial intermediary may be charged a service
fee by that financial intermediary.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value
of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; or (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain municipal securities or a combination of
securities and cash for Fund shares. The securities and cash must have a
market value of at least $25,000. The Fund reserves the right to determine
the acceptability of the securities to be exchanged. Securities accepted by
the Fund are valued in the same manner as the Fund values its assets.
Shareholders wishing to exchange securities should first contact Federated
Securities Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested in writing.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during
that month.
DIVIDENDS
Dividends are declared daily and paid monthly to all shareholders invested
in the Fund on the record date. Dividends are declared just prior to
determining net asset value. Shares purchased by wire begin earning
dividends on the business day after the order is received. Shares purchased
by check begin earning dividends on the business day after the check is
converted, upon instruction of the transfer agent, into federal funds.
Dividends are automatically reinvested on payment dates at the ex-dividend
date net asset value in additional shares of the Fund unless cash payments
are requested by contacting the Fund.
CAPITAL GAINS
Distributions of net realized long term capital gains realized by the Fund,
if any, will be made at least once every twelve months.
REDEEMING SHARES
The Fund redeems shares at their net asset value next determined after the
Fund receives the redemption request. Redemptions will be made on days on
which the Fund computes its net asset value. Investors who redeem shares
through a financial intermediary may be charged a service fee by that
financial intermediary. Redemption requests must be received in proper form
and can be made by telephone request or by written request.
BY TELEPHONE. Shareholders may redeem their shares by telephoning the Fund
before 4:00 p.m. (Eastern time). All proceeds will normally be wire
transferred the following business day, but in no event more than seven
days, to the shareholder's account at a domestic commercial bank that is a
member of the Federal Reserve System. 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. If at any time the Fund shall determine it necessary to terminate
or modify this method of redemption, shareholders would be promptly
notified.
An authorization form permitting the Fund to accept telephone redemption
requests must first be completed. It is recommended that investors request
this privilege at the time of their initial application. If not completed at
the time of initial application, authorization forms and information on this
service can be obtained through Federated Securities Corp. Telephone
redemption instructions may be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should
occur, another method of redemption, such as "By Mail," should be
considered.
BY MAIL. Shares may be redeemed in any amount by mailing a written request
to: Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 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: Federated Pennsylvania Intermediate
Municipal Trust; 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.
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 of
record if the account balance falls below the required minimum value of
$25,000 due to shareholder redemptions. This requirement does not apply,
however, if the balance falls below $25,000 because of changes in the Fund's
net asset value. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of each
portfolio in the Trust have equal voting rights except that in matters
affecting only a particular fund, only shareholders of that fund are
entitled to vote. As of July 5, 1996, Univest & Company, Souderton,
Pennsylvania, owned 26.49% 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.
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 shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of all series in the Trust entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code of 1986, as amended (the "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 federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, dividends representing net interest income earned
on some municipal bonds may be included in calculating the federal
individual alternative minimum tax or the federal alternative minimum tax
for corporations.
The alternative minimum tax, up to 28% of alternative minimum taxable income
for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is
equal to the regular taxable income of the taxpayer increased by certain
"tax preference" items not included in regular taxable income and reduced by
only a portion of the deductions allowed in the calculation of the regular
tax.
Interest on certain "private activity" bonds issued after August 7, 1986, is
treated as a tax preference item for both individuals and corporations.
Unlike traditional governmental purpose municipal bonds, which finance
roads, schools, libraries, prisons, and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase
all types of municipal bonds, including private activity bonds. Thus, should
it purchase any such bonds, a portion of the Fund's dividends may be treated
as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund
which represent interest on municipal bonds will become subject to the 20%
corporate alternative minimum tax because the dividends are included in a
corporation's "adjusted current earnings." The corporate alternative minimum
tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current
earnings" over the taxpayer's alternative minimum taxable income as a tax
preference item. "Adjusted current earnings" is based upon the concept of a
corporation's "earnings and profits." Since "earnings and profits" generally
includes the full amount of any Fund dividend, and alternative minimum
taxable income does not include the portion of the Fund's dividend
attributable to municipal bonds which are not private activity bonds, the
difference will be included in the calculation of the corporation's
alternative minimum tax.
Dividends of the Fund representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and
distributions is provided annually.
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.
Income from the Fund is not necessarily free from taxes in states other than
Pennsylvania. 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 has 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 is based upon the existence of the Pennsylvania
Investment Restrictions (see "Investment Limitations"). However, legislation
enacted in December 1993, eliminates the necessity of the Pennsylvania
Investment Restrictions. That 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 they are derived from gains from tax-exempt obligations.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return, yield, and
tax-equivalent yield.
Total return represents the change, over a specific period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the maximum offering price per share of
the Fund on the last day of the period. This number is then annualized using
semi-annual compounding. 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
specific tax rate. The yield and the tax-equivalent yield do not necessarily
reflect income actually earned by the Fund and, therefore, may not correlate
to the dividends or other distributions paid to shareholders.
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.
FEDERATED PENNSYLVANIA INTERMEDIATE MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS
MAY 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES--102.2%
PENNSYLVANIA--95.1%
$ 350,000 Allegheny County, PA HDA, Hospital Revenue Bonds
(Series A), 5.45% (Allegheny General Hospital)/
(MBIA INS)/(Original Issue Yield: 5.55%), 9/1/2004 Aaa $ 356,954
300,000 Allegheny County, PA HDA, Revenue Bonds (Series A),
5.90% (South Hills Health System)/(Original Issue
Yield: 6.00%), 5/1/2003 A 308,025
300,000 Allegheny County, PA HDA, Revenue Bonds (Series A),
6.00% (South Hills Health System)/(Original Issue
Yield: 6.10%), 5/1/2004 A 307,959
100,000 Allegheny County, PA, UT GO Bonds (Series C-39),
6.00% (AMBAC INS)/(Original Issue Yield: 6.098%),
5/1/2012 Aaa 101,789
100,000 Allegheny County, PA, UT GO Bonds, 5.40%
(MBIA INS)/(Original Issue Yield: 5.50%), 9/15/2005 Aaa 101,627
100,000 Altoona, PA Area School District, UT GO Bonds, 5.35%
(FGIC INS)/(Original Issue Yield: 5.40%), 1/15/2004 Aaa 101,778
100,000 Altoona, PA City Authority, Water Revenue Bonds,
5.60% (FGIC INS)/(Original Issue Yield: 5.699%),
11/1/2004 Aaa 103,833
490,000 Ben Avon Borough, GO Bonds, Series 1996, 4.95%,
2/1/2005 NR 480,602
150,000 Berks County, PA Municipal Authority, Hospital
Revenue Bonds, 5.40% (Reading Hospital & Medical
Center)/(MBIA INS)/(Original Issue Yield: 5.45%),
10/1/2004 Aaa 152,503
100,000 Berks County, PA Municipal Authority, Hospital
Revenue Bonds, 5.60% (Reading Hospital & Medical
Center)/(MBIA INS)/(Original Issue Yield: 5.65%),
10/1/2006 Aaa 102,012
300,000 Bethlehem, PA, UT GO Bonds, 6.30% (MBIA INS),
6/1/2003 Aaa 320,562
</TABLE>
FEDERATED PENNSYLVANIA INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES--CONTINUED
PENNSYLVANIA--CONTINUED
$ 150,000 Cambria County, PA, UT GO (Series A), 5.40% (FGIC
INS)/(Original Issue Yield: 5.50%), 8/15/2004 Aaa $ 153,327
100,000 Central Bucks, PA School District, UT GO Bonds,
5.40% (FGIC INS), 5/15/2003 Aaa 102,671
100,000 Central Bucks, PA School District, UT GO Bonds,
6.00%, 11/15/2003 Aa 106,638
100,000 Commonwealth of Pennsylvania, UT GO Bonds
(Second Series A), 6.30% (MBIA INS)/(Original Issue
Yield: 6.35%), 11/1/2002 Aaa 108,155
100,000 Commonwealth of Pennsylvania, UT GO Bonds
(Series A), 6.50% (Original Issue Yield: 6.60%),
11/15/2010 AA- 106,330
145,000 Commonwealth of Pennsylvania, UT GO Refunding
Bonds (First Series), 5.30%, 5/1/2004 AA- 147,194
150,000 Dauphin County, PA General Authority, Revenue
Bonds, 6.00% (Harrisburg International Airport)/
(MBIA INS), 6/1/2002 Aaa 156,792
150,000 Dauphin County, PA General Authority, Revenue
Bonds, 6.10% (Harrisburg International Airport)/
(MBIA INS), 6/1/2003 Aaa 157,252
345,000 Delaware County Authority, PA, (Series 1995) College
Revenue Bonds, 5.30% (Neumann College)/(Connie Lee
INS)/(Original Issue Yield: 5.40%), 10/1/2007 AAA 334,295
300,000 Delaware County Authority, PA, Hospital Revenue
Bonds, 5.90% (Riddle Memorial Hospital)/(Original
Issue Yield: 6.10%), 1/1/2002 A- 306,696
125,000 Eastern York, PA School District, UT GO Bonds, 5.55%
(MBIA INS), 6/1/2003 Aaa 128,907
100,000 Elizabethtown, PA Area School District, UT GO Bonds,
5.45%, 2/15/2004 A 101,105
125,000 Franklin Park Boro, PA, GO Bonds, 5.50% (AMBAC
INS), 11/1/2004 Aaa 129,202
</TABLE>
FEDERATED PENNSYLVANIA INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES--CONTINUED
PENNSYLVANIA--CONTINUED
$ 300,000 Great Valley School District, PA, UT GO Bonds, 4.45%
(Original Issue Yield: 4.50%), 2/15/2003 Aa1 $ 290,496
500,000 Indiana County, PA Hospital Authority, Revenue
Refunding Bonds (Series B), 6.20% (Indiana Hospital,
PA)/(Connie Lee INS)/(Original Issue Yield: 6.30%),
7/1/2006 AAA 527,570
350,000 Lehigh County, PA General Purpose Authority, General
Purpose Authority Hospital Revenue Bonds, 5.30%
(Lehigh Valley Hospital Inc.)/(MBIA INS) /(Original
Issue Yield: 5.40%), 7/1/2005 Aaa 351,235
575,000 Lehigh County, PA General Purpose Authority, Hospital
Refunding Revenue Bonds (Series 1996A), 5.25%
(Muhlenberg Hospital Center)/(Original Issue Yield:
5.30%), 7/15/2004 A 552,908
325,000 Lower Dauphin, PA School District, UT GO Bonds,
5.75% (AMBAC INS)/(United States Treasury PRF),
3/15/2000 (@100) 9/15/2002 Aaa 337,435
500,000 Lycoming County PA Authority, Hospital Revenue
Bonds, 4.80% (Divine Providence Hospital, PA)/(Connie
Lee INS)/(Original Issue Yield: 4.95%), 11/15/2002 AAA 487,375
180,000 North Penn, PA Water Authority, Revenue Bonds, 5.80%
(FGIC INS)/(Original Issue Yield: 5.85%), 11/1/2005 Aaa 186,959
110,000 North Penn, PA Water Authority, Revenue Bonds,
6.10% (FGIC INS), 11/1/2003 Aaa 117,916
500,000 Northeastern, PA Hospital & Education Authority,
Health Care Revenue Bonds (Series 1994 A), 6.10%
(Wyoming Valley Health Care, PA)/(AMBAC INS)/
(Original Issue Yield: 6.25%), 1/1/2003 Aaa 529,070
300,000 Penn Manor, PA School District, UT GO Bonds, 4.85%
(FGIC INS)/(Original Issue Yield: 4.90%), 6/1/2007 Aaa 284,943
150,000 Penn Trafford, PA School District, UT GO Bonds, 5.55%
(MBIA INS), 5/1/2006 Aaa 153,315
100,000 Pennsylvania Housing Finance Authority, SFM Revenue
Bonds (Series 38), 5.30%, 4/1/2003 AA 99,653
</TABLE>
FEDERATED PENNSYLVANIA INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES--CONTINUED
PENNSYLVANIA--CONTINUED
$ 100,000 Pennsylvania Housing Finance Authority, SFM Revenue
Bonds (Series 41-B), 5.90%, 10/1/2005 AA $ 101,539
100,000 Pennsylvania Housing Finance Authority, SFM Revenue
Bonds (Series 42), 5.90%, 10/1/2004 AA 101,661
345,000 Pennsylvania Housing Finance Authority, SFM Revenue
Bonds (Series 43), 6.35%, 4/1/2001 AA 355,602
500,000 (b)Pennsylvania Infrastructure Investment Authority,
Revenue Bonds, 6.00% (Pennvest)/(MBIA INS),
9/1/2003 Aaa 531,140
500,000 Pennsylvania Intergovernmental Coop Authority,
Special Tax Revenue Refunding Bonds, Philadelphia
Funding Program, 5.20% (FGIC INS)/(Original Issue
Yield: 5.32%), 6/15/2007 Aaa 490,005
300,000 Pennsylvania State Higher Education Facilities
Authority, College & University Refunding Revenue
Bonds, 6.00% (Carnegie-Mellon University), 11/1/2003 AA- 319,245
125,000 Pennsylvania State Higher Education Facilities
Authority, Health Services Revenue Bonds (Series A),
6.00% (University of Pennsylvania), 1/1/2003 AA- 131,005
500,000 Pennsylvania State Higher Education Facilities
Authority, Health Services Revenue Bonds (Series B of
1996), 5.10% (University of Pennsylvania)/(Original
Issue Yield: 5.15%), 1/1/2005 AA 496,040
200,000 Pennsylvania State Higher Education Facilities
Authority, Revenue Bonds (Series L), 5.50% (State
System of Higher Education, Commonwealth of PA)/
(AMBAC INS)/(Original Issue Yield: 5.55%), 6/15/2005 Aaa 204,358
125,000 Pennsylvania State Turnpike Commission, Turnpike
Revenue Bonds (Series P), 5.45%, 12/1/2002 A1 128,508
100,000 Pennsylvania State University, Second Revenue
Refunding Bonds, 5.55% (AMBAC INS)/(Original Issue
Yield: 5.70%), 8/15/2006 Aaa 101,711
125,000 Perkiomen Valley School District, PA, UT GO Bonds,
5.50%, 2/1/2004 A1 127,509
</TABLE>
FEDERATED PENNSYLVANIA INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES--CONTINUED
PENNSYLVANIA--CONTINUED
$ 300,000 Philadelphia, PA Gas Works, Revenue Bonds (14th
Series), 5.50% (FSA INS)/(Original Issue Yield: 6.10%),
7/1/2004 Aaa $ 306,858
480,000 Philadelphia, PA Hospitals & Higher Education
Facilities Authority, Hospital Revenue & Refunding
Bonds, 5.65% (Albert Einstein Medical Center, PA)/
(Original Issue Yield: 5.75%), 10/1/2006 A 474,931
100,000 Philadelphia, PA Hospitals & Higher Education
Facilities Authority, Hosptial Revenue Bonds (Series
1994), 5.25% (Wills Eye Hospital, PA)/(Original Issue
Yield: 5.40%), 7/1/2003 A 98,545
350,000 Philadelphia, PA Hospitals & Higher Education
Facilities Authority, Revenue Bonds (Series A), 6.50%
(Children's Hospital of Philadelphia)/(United States
Treasury PRF)/(Original Issue Yield: 6.85%),
2/15/2002 (@102) Aaa 383,684
300,000 Philadelphia, PA School District, LT GO (Series A),
5.45% (MBIA INS), 7/1/2004 Aaa 306,573
150,000 Philadelphia, PA Water & Wastewater System, Revenue
Bonds, 5.50% (FGIC INS), 6/15/2003 Aaa 154,715
100,000 Richland School District, PA, UT GO Bonds, 5.30%
(MBIA INS)/(Original Issue Yield: 5.45%), 11/1/2003 Aaa 102,115
125,000 Solanco, PA School District, UT GO Bonds, 5.60%
(FGIC INS), 2/15/2004 Aaa 128,810
100,000 Spring Ford, PA School District, UT GO Refunding
Bonds (Series AA), 5.80% (FGIC INS), 8/1/2005 Aaa 102,345
260,000 Stroudsburg, PA Area School District, GO Bonds,
Series 1995, 4.90% (FGIC INS), 10/1/2004 Aaa 258,141
200,000 Swarthmore Boro Authority PA, College Revenue
Bonds, 6.00% (Swarthmore College)/(Original Issue
Yield: 6.10%), 9/15/2006 AA 209,206
185,000 Warren County, PA School District, UT GO Bonds,
5.85% (FGIC INS), 9/1/2001 Aaa 191,018
</TABLE>
FEDERATED PENNSYLVANIA INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C>
INTERMEDIATE-TERM MUNICIPAL SECURITIES--CONTINUED
PENNSYLVANIA--CONTINUED
$ 110,000 Warren County, PA School District, UT GO Bonds, 6.10%
(FGIC INS), 9/1/2003 Aaa $ 113,728
Total 14,314,075
VIRGIN ISLANDS--1.1%
170,000 Virgin Islands HFA, SFM Revenue Refunding Bonds
(Series A), 5.80% (GNMA COL), 3/1/2005 AAA 171,049
TOTAL INTERMEDIATE-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $14,326,511) 14,485,124
SHORT-TERM MUNICIPAL SECURITIES--6.0%
PENNSYLVANIA -- 4.7%
700,000 Geisinger Authority, PA Health System, (Series 1992B)
Daily VRDNs 3.30% AA 700,000
PUERTO RICO--1.3%
200,000 Puerto Rico Government Development Bank Weekly
VRDNs (Credit Suisse, Zurich LOC) AA+ 200,000
TOTAL SHORT-TERM MUNICIPAL SECURITIES
(AT AMORTIZED COST) 900,000
TOTAL INVESTMENTS (IDENTIFIED COST $15,226,511)(A) $15,385,124
</TABLE>
(a) The cost of investments for federal tax purposes amounts to $15,226,511.
The net unrealized appreciation of investments on a federal tax basis
amounts to $158,613 which is comprised of $255,727 appreciation and $97,114
depreciation at May 31, 1996.
(b) Denotes delayed delivery security.
* 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
($15,054,206) at May 31, 1996.
The following acronym(s) are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
COL -- Collateralized
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
GO -- General Obligation
HDA -- Hospital Development Authority
HFA -- Housing Finance Authority
INS -- Insured
LOC -- Letter of Credit
LT -- Limited Tax
MBIA -- Municipal Bond Investors Assurance
PRF -- Prerefunded
SFM -- Single Family Mortgage
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
FEDERATED PENNSYLVANIA INTERMEDIATE MUNICIPAL TRUST
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and
tax cost $15,226,511) $15,385,124
Cash 412
Income receivable 195,603
Receivable for shares sold 55,601
Deferred expenses 7,078
Total assets 15,643,818
LIABILITIES:
Payable for investments purchased $533,155
Payable for shares redeemed 1,320
Income distribution payable 43,876
Accrued expenses 11,261
Total liabilities 589,612
NET ASSETS for 1,505,578 shares outstanding $15,054,206
NET ASSETS CONSIST OF:
Paid in capital $15,084,457
Net unrealized appreciation of investments 158,613
Accumulated net realized loss on investments (188,864)
Total Net Assets $15,054,206
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$15,054,206 O 1,505,578 shares outstanding $10.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED PENNSYLVANIA INTERMEDIATE MUNICIPAL TRUST
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 598,735
EXPENSES:
Investment advisory fee $ 56,849
Administrative personnel and services fee 125,000
Custodian fees 18,403
Transfer and dividend disbursing agent fees and
expenses 15,937
Directors'/Trustees' fees 2,625
Auditing fees 16,661
Legal fees 2,809
Portfolio accounting fees 50,825
Shareholder services fee 28,425
Share registration costs 17,368
Printing and postage 10,298
Insurance premiums 3,485
Miscellaneous 9,379
Total expenses 358,064
Waivers and reimbursements --
Waiver of investment advisory fee $ (56,849)
Waiver of shareholder services fee (16,605)
Reimbursement of other operating expenses (232,945)
Total waivers and reimbursements (306,399)
Net expenses 51,665
Net investment income 547,070
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (26,717)
Net change in unrealized appreciation of investments (126,841)
Net realized and unrealized loss on investments (153,558)
Change in net assets resulting from operations $ 393,512
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED PENNSYLVANIA INTERMEDIATE MUNICIPAL TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 547,070 $ 334,414
Net realized gain (loss) on investments ($87,417 and
$74,731, net losses,
respectively, as computed for federal tax purposes) (26,717) (124,072)
Net change in unrealized appreciation (depreciation) (126,841) 334,985
Change in net assets resulting from operations 393,512 545,327
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (547,070) (334,414)
SHARE TRANSACTIONS--
Proceeds from sale of shares 13,768,008 15,556,453
Net asset value of shares issued to shareholders in
payment of
distributions declared 118,987 34,262
Cost of shares redeemed (7,023,515) (10,337,938)
Change in net assets resulting from share
transactions 6,863,480 5,252,777
Change in net assets 6,709,922 5,463,690
NET ASSETS:
Beginning of period 8,344,284 2,880,594
End of period $15,054,206 $ 8,344,284
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED PENNSYLVANIA INTERMEDIATE MUNICIPAL TRUST
Notes to Financial Statements
MAY 31, 1996
(1) ORGANIZATION
Intermediate 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 three portfolios. The
financial statements included herein present only those of Federated
Pennsylvania Intermediate Municipal Trust (the "Fund"), a non-diversified
portfolio. The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The
investment objective of the Fund is to provide current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania.
(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 -- Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk, credit
quality, coupon, maturity, type of issue, and any other factors or market
data the pricing service deems relevant. Short-term securities are valued at
the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value.
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 May 31, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $162,148 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:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<C> <C>
2003 $74,731
2004 $87,417
</TABLE>
Additionally, net capital losses of $26,717 attributable to security
transactions incurred after October 31, 1995, are treated as arising on June
1, 1996, the first day of the Fund's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES -- The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement 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 May 31, 1996, 52.9%
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 from any one institution or agency
did not exceed 19.0% of total investments.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses, and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
<S> <C> <C>
Shares sold 1,358,404 1,596,301
Shares issued to shareholders in payment of distributions declared 11,708 3,517
Shares redeemed (694,299) (1,062,458)
Net change resulting from Fund share transactions 675,813 537,360
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.50% of the Fund's average daily net assets. The
Adviser waived a portion of its fee to comply with certain state expense
limitations. The Adviser may voluntarily choose to waive any portion of its
fee and reimburse certain operating expenses of the Fund. The Adviser can
modify or terminate this voluntary waiver and reimbursement at any time at
its sole discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund shares for the period.
The fee paid to FSS is used to finance certain services for shareholders and
to maintain shareholder accounts. FSS may voluntarily choose to waive a
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Trust's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational expenses of $24,690 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
and administrative expenses during the five year period following November
15, 1993 (date the Fund first became effective). For the period ended May
31, 1996, the Fund paid $4,252 and $5,426, respectively, pursuant to this
agreement.
INTERFUND TRANSACTIONS -- During the period ended May 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $9,800,000 and $9,250,000 respectively.
GENERAL -- Certain of the Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1996 were as follows:
PURCHASES $8,047,750
SALES $1,260,572
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
INTERMEDIATE MUNICIPAL TRUST
(Federated Pennsylvania Intermediate Municipal Trust):
We have audited the accompanying statement of assets and liabilities of
Federated Pennsylvania Intermediate Municipal Trust (an investment portfolio
of Intermediate Municipal Trust, a Massachusetts business trust), including
the schedule of portfolio investments, as of May 31, 1996, 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 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 May 31, 1996, by correspondence with the custodian
and broker. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Federated Pennsylvania Intermediate Municipal Trust, an investment portfolio
of Intermediate Municipal Trust, as of May 31, 1996, 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 financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
July 12, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
ADDRESSES
Fund
Federated Pennsylvania Federated Investors Tower
Intermediate Municipal Trust Pittsburgh, Pennsylvania 15222-3779
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
Transfer Agent and Dividend
Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
</TABLE>
[This Page Intentionally Left Blank]
[This Page Intentionally Left Blank]
Federated Pennsylvania Intermediate
Municipal Trust
Prospectus
A Non-Diversified Portfolio of
Intermediate Municipal Trust
An Open-End, Management
Investment Company
July 31, 1996
[Graphic]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 458810306
3081603A (7/96)
FEDERATED PENNSYLVANIA INTERMEDIATE MUNICIPAL TRUST
(A PORTFOLIO OF INTERMEDIATE MUNICIPAL TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Federated Pennsylvania Intermediate Municipal Trust (the
`Fund''), a portfolio of Intermediate Municipal Trust (the ``Trust'')
dated July 31, 1996. This Statement is not a prospectus. You may
request a copy of a prospectus or a paper copy of this Statement, if
you have received it electronically, free of charge by calling
1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated July 31, 1996
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 458810306
3081603B (7/96)
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Acceptable Investments 1
When-Issued and Delayed Delivery
Transactions 2
Temporary Investments 2
Portfolio Turnover 3
Investment Limitations 3
Investment Risks 4
MANAGEMENT OF INTERMEDIATE MUNICIPAL TRUST5
Officers and Trustees 5
Fund Ownership 9
Trustees' Compensation 9
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
Adviser to the Fund 10
Advisory Fees 10
OTHER SERVICES 11
Fund Administration 11
Custodian and Portfolio Accountants 11
Transfer Agent 11
Independent Public Accountants 11
SHAREHOLDER SERVICES 11
BROKERAGE TRANSACTIONS 11
PURCHASING SHARES 12
Conversion to Federal Funds 12
DETERMINING NET ASSET VALUE 12
Valuing Municipal Bonds 12
Use of Amortized Cost 12
REDEEMING SHARES 12
Redemption in Kind 12
EXCHANGING SECURITIES FOR FUND SHARES 13
Tax Consequences 13
MASSACHUSETTS PARTNERSHIP LAW 13
TAX STATUS 13
The Fund's Tax Status 13
Shareholders' Tax Status 13
TOTAL RETURN 14
YIELD 14
TAX-EQUIVALENT YIELD 14
Tax-Equivalency Table 14
PERFORMANCE COMPARISONS 15
Economic and Market Information 16
ABOUT FEDERATED INVESTORS 16
Mutual Fund Market 16
APPENDIX 18
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in Intermediate Municipal Trust (the "Trust"). The
Trust was established as a Massachusetts business trust under a Declaration
of Trust dated May 31, 1985. On September 1, 1993, the name of the Trust
was changed from `Federated Intermediate Municipal Trust'' to
`Intermediate Municipal Trust.'' On December 19, 1994, the name of the
Fund was changed from `Pennsylvania Intermediate Municipal Trust'' to
`Federated Pennsylvania Intermediate Municipal Trust.''
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide current income which is
exempt from federal regular income tax and the personal income taxes
imposed by the Commonwealth of Pennsylvania. The investment objective
cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in a portfolio of municipal securities which are
exempt from federal regular income tax and Pennsylvania state personal
income taxes. These securities include those issued by or on behalf of the
Commonwealth of Pennsylvania and Pennsylvania municipalities, and those
issued by states, territories and possessions of the United States which
are exempt from federal regular income tax and the Pennsylvania state
personal income taxes.
CHARACTERISTICS
The Pennsylvania municipal securities in which the Fund invests have
the characteristics set forth in the prospectus.
A Pennsylvania municipal security will be determined by the Fund's
adviser to meet the quality standards established by the Trust's Board
of Trustees (the "Trustees") if it is of comparable quality to
municipal securities within the Fund's rating requirements. The
Trustees consider the creditworthiness of the issuer of a municipal
security, the issuer of a participation interest if the Fund has the
right to demand payment from the issuer of the interest, or the
guarantor of payment by either of those issuers. The Fund is not
required to sell a municipal security if the security's rating is
reduced below the required minimum subsequent to its purchase by the
Fund. The investment adviser considers this event, however, in its
determination of whether the Fund should continue to hold the security
in its portfolio. If Moody's Investors Service, Inc., Standard &
Poor's Ratings Group or Fitch Investors Services, Inc. ratings change
because of changes in those organizations or in their rating systems,
the Fund will try to use comparable ratings as standards in accordance
with the investment policies described in the Fund's prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of Pennsylvania municipal securities are:
omunicipal notes and municipal commercial paper;
oserial bonds sold with differing maturity dates;
otax anticipation notes sold to finance working capital needs of
municipalities;
obond anticipation notes sold prior to the issuance of longer-term
bonds;
opre-refunded municipal bonds; and
ogeneral obligation bonds secured by a municipality pledge of
taxation.
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).
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the market value
of municipal securities from their original purchase prices.
Accordingly, as interest rates decrease or increase, the potential for
capital appreciation or depreciation is less for variable rate
municipal securities than for fixed income obligations. Many municipal
securities with variable interest rates purchased by the Fund are
subject to repayment of principal (usually within seven days) on the
Fund's demand. The terms of these variable rate demand instruments
require payment of principal and accrued interest from the issuer of
the municipal obligations, the issuer of the participation interests,
or a guarantor of either issuer.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of
participation interests which represent undivided proportional
interests in lease payments by a governmental or non-profit entity.
The lease payments and other rights under the lease provide for and
secure the payments on the certificates. Lease obligations may be
limited by municipal charter or the nature of the appropriation for
the lease. In particular, lease obligations may be subject to periodic
appropriation. If the entity does not appropriate funds for future
lease payments, the entity cannot be compelled to make such payments.
Furthermore, a lease may provide that the certificate trustee cannot
accelerate lease obligations upon default. The trustee would only be
able to enforce lease payments as they became due. In the event of
default or failure of appropriation, it is unlikely that the trustee
would be able to obtain an acceptable substitute source of payment.
In determining the liquidity of municipal lease securities, the Fund's
investment adviser, under the authority delegated by the Trustees,
will base its determination on the following factors:
owhether the lease can be terminated by the lessee;
othe potential recovery, if any, from a sale of the leased property
upon termination of the lease;
othe lessee's general credit strength (e.g., its debt,
administrative, economic and financial characteristics and
prospects);
othe 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
oany credit enhancement or legal recourse provided upon an event of
non-appropriation or other termination of the lease.
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 may engage in when-issued and delayed delivery transactions to an
extent that would cause the segregation of an amount up to 20% of the total
value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments during times of unusual
market conditions for defensive purposes.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or certificates of deposit to the Fund and agree at the
time of sale to repurchase them at a mutually agreed upon time and
price within one year from the date of acquisition. The Fund or its
custodian will take possession of the securities subject to repurchase
agreements. 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.
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 to
another person, such as a financial institution, broker, or dealer in
return for a percentage of the instrument's market value in cash and
agrees that on a stipulated date in the future the Fund will
repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not
ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated at the trade date. These
securities are marked to market daily and maintained until the
transaction is settled.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered
necessary to meet its investment objective. For the year ended May 31, 1996
and 1995, the portfolio turnover rates for the Fund were 11% and 41%,
respectively.
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 purchases and sales of securities.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its total assets, including the amounts
borrowed.
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its assets except
to secure permitted borrowings. In those cases, it may mortgage,
pledge, or hypothecate assets having a market value not exceeding 10%
of the value of its total assets at the time of the pledge.
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 REAL ESTATE
The Fund will not purchase or sell real estate or invest in real
estate limited partnerships, although it may invest in municipal bonds
secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not buy or sell commodities, commodity contracts, or
commodities futures contracts.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or non-publicly issued municipal bonds or temporary
investments or enter into repurchase agreements in accordance with its
investment objective, policies, and limitations or its Declaration of
Trust.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would be
invested in any one industry or in industrial development bonds or
other securities, the interest upon which is paid from revenues of
similar types of projects. However, the Fund may invest as temporary
investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its
agencies, or instrumentalities, or instruments secured by these money
market instruments, i.e., 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, or other acquisition.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES
OF THE TRUST
The Fund will not purchase or retain the securities of any issuer if
the Officers and Trustees of the Trust or its investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in securities
which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice, and certain
restricted securities not determined by the Trustees to be liquid.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets
in industrial development bonds 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 MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest
in the securities of issuers which invest in or sponsor such programs.
In addition, to comply with investment restrictions of a certain state, the
Fund will not invest in real estate limited partnerships.
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.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."
INVESTMENT RISKS
Yields on Pennsylvania municipal securities depend on a variety of factors,
including: the general conditions of the municipal bond market; the size of
the particular offering; the maturity of the obligations; and the rating of
the issue. Further, any adverse economic conditions or developments
affecting the Commonwealth of Pennsylvania or its county and local
governments could impact the Fund's portfolio. The Fund's concentration in
securities issued by the Commonwealth of Pennsylvania 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 Pennsylvania; and their underlying fiscal
condition.
The Commonwealth of Pennsylvania's budget stability depends largely upon
expenditure controls which keep spending in line with what is considered a
relatively limited revenue base. The Commonwealth maintains reasonable debt
levels and has a sound economic position which has shifted over time from
very heavy reliance on manufacturing and mining industries to a more stable
employment base. The Commonwealth restored structural balance to its budget
in fiscal year 1993 through tax increases, spending controls and
conservative debt management. Recurring budgetary pressures include rapid
growth in Medicaid spending and social service programs, and expenditures
for additional correctional facilities. Spending was increased by 2.7% for
fiscal year 1996 based on continued modest improvement in the economy,
adherence to debt control policies and spendable reserves from the prior
year. The 1997 budget includes an estimated $118 million surplus from
fiscal year 1996, tax credit for job creation, and continued growth in
Medicaid expenditures. The Commonwealth has restored the Tax Stabilization
Reserve Fund to approximately $84 million and general fund receipts were on
target through fiscal year 1996, reflecting an improving regional economy
and reasonable revenue projections. Reductions in state assistance and
increased social service demands have made it more difficult for local
governments (counties, cities, towns) to operate with balanced budgets.
School districts in the Commonwealth are provided additional credit support
through Pennsylvania's Act 150 which provides subsidized debt service for
qualified projects and an intercept mechanism of state aid payments which
would be used to pay bondholders in the case of a missed debt service
payment.
Concerning the constitutional provisions pertaining to debt, the
Commonwealth may issue tax anticipation notes for its General Fund and/or
Motor License Fund. However, the aggregate amount of newly issued and
outstanding tax anticipation notes is limited to a maximum of 20% of the
estimated revenues of the appropriate fund for the fiscal year in which the
notes are issued. The notes must mature within the fiscal year of issuance.
The Commonwealth of Pennsylvania may also issue bond anticipation notes
with a term not to exceed three years. The bond anticipation notes are
subject to applicable statutory limitations pertaining to the issuance of
bonds. The ability of the Fund to achieve its investment objective depends
on the continuing ability of the issuers of Pennsylvania Municipal
Securities and participation interests, or the guarantors of either, to
meet their obligations for the payment of interest and principal when due.
Investing in Pennsylvania Municipal Securities which meet the Fund's
quality standards may not be possible if the Commonwealth of Pennsylvania
and its municipalities do not maintain their current credit rating.
MANAGEMENT OF INTERMEDIATE MUNICIPAL TRUST
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, birthdates, present
positions with Intermediate 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.; 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.
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.
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 or Trustee 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 or Trustee 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 or Trustee 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 or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine 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 or Trustee 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 or Trustee of the Funds; formerly, Counsel, Horizon Financial,
F.A., Western Region.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director
or Trustee 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 or
Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics 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 or Trustee 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 or Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the 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 Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President, Secretary
and Treasurer of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board between meetings of
the Board.
As 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 Group of
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: 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; Federated
Insurance Series; 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 Obligation;
The Virtus Funds; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of July 5, 1996, the following shareholders of record owned 5% or more
of the outstanding Shares of the Fund: Univest & Company, Souderton,
Pennsylvania, owned approximately 403,983 Shares (26.49%); Charles Schwab &
Co., Inc., San Francisco, California, owned approximately 231,605 Shares
(15.16%); Keystone Financial Inc., Altoona, Pennsylvania, owned
approximately 157,319 Shares (10.31%); FirstNat Co., West Chester,
Pennsylvania, owned approximately 76,507 Shares (5.02%); and Harmony Co.,
Carlisle, Pennsylvania, owned approximately 272,345 Shares (17.86%).
TRUSTEES' COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST *# FROM FUND COMPLEX +
JOHN F. DONAHUE $0 $ 0 FOR THE TRUST AND
CHAIRMAN AND TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND
COMPLEX
THOMAS G. BIGLEY,++ $552.58 $86,331 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
JOHN T. CONROY, JR., $600.35 $115,760 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
WILLIAM J. COPELAND, $600.35 $115,760 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
JAMES E. DOWD, $600.35 $115,760 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
LAWRENCE D. ELLIS, M.D., $552.58 $104,898 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
EDWARD L. FLAHERTY, JR., $600.35 $115,760 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
GLEN R. JOHNSON $ 0 $ 0 FOR THE TRUST AND
PRESIDENT AND TRUSTEE 9 OTHER INVESTMENT COMPANIES IN THE FUND
COMPLEX
PETER E. MADDEN, $552.58 $104,898 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
++
Mr. Bigley served on 39 investment companies in the Federated Funds Complex
from January 1 through September 30, 1995. On October 1,
1995, he was appointed a Trustee on 15 additional Federated Funds.
GREGOR F. MEYER, $552.58 $104,898 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
JOHN E. MURRAY, JR., $552.58 $104,898 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
WESLEY W. POSVAR,$552.58 $104,898 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
MARJORIE P. SMUTS, $552.58 $104,898 FOR THE TRUST AND
TRUSTEE 54 OTHER INVESTMENT COMPANIES IN THE FUND COMPLEX
*Information is furnished for the fiscal year ended May 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
three 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 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
Fund.
ADVISORY FEES
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectus.
For the year ended May 31, 1996, 1995, and the period from December 2, 1993
(date of initial public investment) to May 31, 1994, the Adviser earned
$56,849, $32,714 and $3,767, all of which was voluntarily waived. In
addition, the Adviser reimbursed other operating expenses of $232,945,
$225,621 and $34,400, respectively.
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 2.5% per year of the first $30 million of average net
assets, 2% per year of the next $70 million of average net assets, and
1.5% per year of the remaining average net assets, the Adviser will
reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser
will be limited, in any single fiscal year, by the amount of the
investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's administrator. Prior to March
1, 1994, Federated Administrative Sevices, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the "Administrators." For the fiscal years ended May 31, 1996, 1995, and
the period from December 2, 1993 (date of initial public investment) to May
31, 1994, the Administrators earned $125,000, $125,000, and $1,225,
respectively, none of which was waived. Dr. Henry 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 Services Company.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is custodian
for the securities and cash of the Fund. Federated Services Company,
Pittsburgh, Pennsylvania, provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments. The fee paid
for this service is based upon the level of the Fund's average net assets
for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based upon 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, Pennsylvania.
SHAREHOLDER SERVICES
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
to maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that
the Fund will benefit by: (1) providing personal services to shareholders;
(2) investing shareholder assets with a minimum of delay and administrative
detail; (3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their accounts.
For the fiscal year ending May 31, 1996, the Fund paid $28,425 pursuant to
the Shareholder Services Agreement.
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(s) ended May 31, 1996, 1995, and
1994, the Fund paid no brokerage commissions.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the Adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the Adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
PURCHASING SHARES
Except under certain circumstances described in the prospectus, shares are
sold at their net asset value on days the New York Stock Exchange is open
for business. The procedure for purchasing shares is explained in the
prospectus under "Investing in the Fund. ``
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that the
maximum interest may be earned. Federated Services Company acts as the
shareholder's agent in depositing checks and converting them into federal
funds.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the prospectus.
VALUING MUNICIPAL BONDS
The Trustees use an independent pricing service to value municipal bonds.
The independent pricing service takes into consideration yield, stability,
risk, quality, coupon rate, maturity, type of issue, trading
characteristics, special circumstances of a security or trading market, and
any other factors or market data it considers relevant in determining
valuations for normal institutional size trading units of debt securities,
and does not rely exclusively on quoted prices.
USE OF AMORTIZED COST
The Trustees have decided that the fair value of debt securities authorized
to be purchased by the Fund with remaining maturities of 60 days or less at
the time of purchase, shall be their amortized cost value, unless the
particular circumstances of the security indicate otherwise. Under this
method, portfolio instruments and assets are valued at the acquisition cost
as adjusted for amortization of premium or accumulation of discount rather
than at current market value. The Executive Committee continually assesses
this method of valuation and recommends changes where necessary to assure
that the Fund's portfolio instruments are valued at their fair value as
determined in good faith by the Trustees.
REDEEMING SHARES
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although State Street Bank does not
charge for telephone redemptions, it reserves the right to charge a fee for
the cost of wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in a
manner the Trustees determine to be fair and equitable.
The Fund has elected to be governed by Rule 18f-1 of the Investment Company
Act of 1940, as amended, under which the Trust is obligated to redeem
shares for any one shareholder in cash only up to the lesser of $250,000 or
1% of the Fund's net asset value during any 90-day period.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange municipal securities they already own for shares or
they may exchange a combination of municipal securities and cash for
shares. An investor should forward the securities in negotiable form with a
letter of transmittal and authorization to Federated Securities Corp. The
Fund will notify the investor of its acceptance and valuation of the
securities within five business days of their receipt by State Street Bank.
The Fund values securities in the same manner as the Fund values its
assets. The basis of the exchange will depend upon the net asset value of
Fund 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 Trust, along with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the cost basis of the securities exchanged for
shares, a gain or loss may be realized by the investor.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for
such acts or obligations of the Trust. These documents require notice of
this disclaimer to be given in each agreement, obligation, or instrument
that the Trust or its Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable
for the Trust's obligations, the Trust is required to use its property to
protect or compensate the shareholder. On request, the Trust will defend
any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from
liability as a shareholder will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from
its assets.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. To qualify for this
treatment, the Fund must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the sale of
portfolio securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because of:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or
oan attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such, whether
they are taken in cash or reinvested, and regardless of the length of
time the shareholder has owned the shares. Any loss by a shareholder
on Fund shares held for less than six months and sold after a capital
gains distribution will be treated as a long-term capital loss to the
extent of the capital gains distribution.
TOTAL RETURN
The Fund's average annual total return for the one-year ended May 31, 1996,
and for the period from December 5, 1993 (date of initial public
investment) to May 31, 1996 were 4.27% and 4.96%, respectively.
The Fund's cumulative total return for the period from December 5, 1993
(date of initial public investment) to May 31, 1996 was 12.79%. Cumulative
average annual total return reflects the Fund's total performance over a
specific period of time. The Fund's total return is representative of only
five months of investment activity since the Fund's effective date.
The average annual total return for the Fund 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.
YIELD
The Fund's yield for the thirty-day period ended May 31, 1996, was 4.89%.
The yield for shares of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by the Fund over a thirty-day period by the maximum
offering price per share on the last day of the period. This value is then
annualized using semi-annual compounding. This means that the amount of
income generated during the thirty-day period is assumed to be generated
each month over a twelve-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, performance will be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
The Fund's tax-equivalent yield for the thirty-day period ended May 31,
1996, was 8.49%.
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 39.60% federal tax rate and
assuming that income is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Fund's
portfolio generally remains free from federal regular income tax,*
Pennsylvania personal income tax and certain local taxes. (Some portion of
the Fund's income may be subject to the federal alternative minimum tax and
state and local taxes.) As the table below indicates, a "tax-free"
investment is an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF PENNSYLVANIA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
17.80% 30.80% 33.80% 38.80% 42.40%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.82% 2.17% 2.27% 2.45% 2.60%
2.00% 2.43% 2.89% 3.02% 3.27% 3.47%
2.50% 3.04% 3.61% 3.78% 4.08% 4.34%
3.00% 3.65% 4.34% 4.53% 4.90% 5.21%
3.50% 4.26% 5.06% 5.29% 5.72% 6.08%
4.00% 4.87% 5.78% 6.04% 6.54% 6.94%
4.50% 5.47% 6.50% 6.80% 7.35% 7.81%
5.00% 6.08% 7.23% 7.55% 8.17% 8.68%
5.50% 6.69% 7.95% 8.31% 8.99% 9.55%
6.00% 7.30% 8.67% 9.06% 9.80% 10.42%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state and
local taxes paid on comparable taxable investments were not used to
increase federal deductions.
PERFORMANCE COMPARISONS
The performance of the Fund depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings
and offering price per share are factors in the computation of yield and
total return as described above.
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 composition 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 by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in net asset value over a specific period of time. From time to time,
the Fund will quote its Lipper ranking in the "other states
intermediate municipal debt funds" category in advertising and sales
literature.
o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
o LEHMAN BROTHERS FIVE-YEAR STATE GENERAL OBLIGATION BONDS is an index
comprised of all state general obligation debt issues with maturities
between four and six years. These bonds are rated A or better and
represent a variety of coupon ranges. Index figures are total returns
calculated for one, three and twelve month periods as well as year-to-
date. Total returns are also calculated as of the index inception
December 31, 1979.
o LEHMAN BROTHERS TEN-YEAR STATE GENERAL OBLIGATION BONDS is an index
comprised of the same issues noted above except that the maturities
range between nine and eleven years. Index figures are total returns
calculated for the same periods as listed above.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. The total
returns represent the historic change in the value of an investment in the
Fund based on monthly reinvestment of dividends over a specific period of
time.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns in general, that demonstrate
basic investment concepts such as tax-deferred compounding, dollar-cost
averaging and systematic investment. In addition, the Fund can compare its
performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Fund. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the municipal sector, as of December 31, 1995, Federated Investors
managed 12 bond funds with approximately $2.0 billion in assets and 20
money market funds with approximately $7.8 billion in total assets. In
1976, Federated introduced one of the first municipal bond mutual funds in
the industry and is now one of the largest institutional buyers of
municipal securities. The Fund may quote statistics from organizations
including The Tax Foundation and the National Taxpayers Union regarding the
tax obligations of Americans.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and
high yield corporate bond management while William D. Dawson, Executive
Vice President, oversees Federated's domestic fixed income management.
Henry A. Frantzen, Executive Vice President, oversees the management of
Federated'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 $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of applications, including defined benefit and
defined contribution programs, cash management, and asset/liability
management. Institutional clients include corporations, pension
funds, tax-exempt entities, foundations/endowments, insurance companies,
and investment and financial advisors. The marketing effort to these
institutional clients is headed by John B. Fisher, President,
Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust
divisions of the top 100 bank holding companies use Federated funds in
their clients' portfolios. The marketing effort to trust clients is
headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing
& Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage
firms nationwide--including 200 New York Stock Exchange firms--supported
by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has
earned it high rankings in several DALBAR Surveys. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer
Division.
* SOURCE: Investment Company Institute
APPENDIX
STANDARD AND POOR'S RATINGS GROUP (`S&P'') MUNICIPAL BOND 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 rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
NR--Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate or municipal bond rating
system. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end
of its generic rating category.
FITCH INVESTORS SERVICE, INC. INVESTMENT GRADE BOND RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the "AAA" category.
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL NOTE RATINGS
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.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM LOAN RATINGS
MIG1/VMIG1--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/VMIG2--This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
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 for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-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:
o leading market positions in well-established industries;
o high rates of return on funds employed;
o conservative capitalization structure with moderate reliance on debt
and ample asset protection;
o broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o well-established access to a range of financial markets and assured
sources of alternative liquidity.
PRIME-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.
