CONNECTICUT MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Connecticut Municipal Cash Trust (the
"Fund") offered by this prospectus represent interests in a non-diversified
portfolio of securities which is one of a series of investment portfolios in
Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund). The investment objective of the Fund is to provide
current income exempt from federal regular income tax and the Connecticut
Personal Income Tax consistent with stability of principal. The Fund invests
primarily in short-term Connecticut municipal securities, including securities
of states, territories, and possessions of the United States, which are not
insured by or on behalf of Connecticut or its political subdivisions and
financing authorities, which are exempt from the federal regular income tax and
Connecticut Personal Income Tax. Institutional Service Shares are sold at net
asset value, without a sales load.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THE INSTITUTIONAL SERVICE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in Institutional Service Shares. Keep this prospectus for future
reference.
The Fund has also filed a Statement of Additional Information for Institutional
Service Shares dated December 31, 1993, with the Securities and Exchange
Commission. The information contained in the Statement of Additional Information
is incorporated by reference into this prospectus. You may request a copy of the
Statement of Additional Information free of charge by calling 1-800-235-4669. To
obtain other information or to make inquiries about the Fund, contact the Fund
at the address listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 31, 1993
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Variable Rate Demand Notes 4
Participation Interests 4
Municipal Leases 4
Ratings 4
Credit Enhancement 5
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed Delivery
Transactions 5
Temporary Investments 5
Connecticut Municipal Securities 6
Standby Commitments 6
Connecticut Investment Risks 6
Non-Diversification 7
Investment Limitations 7
Regulatory Compliance 7
FEDERATED MUNICIPAL TRUST INFORMATION 8
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Management of Federated Municipal Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Institutional Service Shares 9
Administrative Arrangements 9
Administration of the Fund 9
Administrative Services 9
Custodian 9
Transfer Agent and
Dividend Disbursing Agent 9
Legal Counsel 9
Independent Public Accountants 9
NET ASSET VALUE 10
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INVESTING IN INSTITUTIONAL SERVICE SHARES 10
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Share Purchases 10
By Wire 10
By Mail 10
Minimum Investment Required 10
What Shares Cost 11
Subaccounting Services 11
Certificates and Confirmations 11
Dividends 11
Capital Gains 11
REDEEMING INSTITUTIONAL SERVICE SHARES 12
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Telephone Redemption 12
Written Requests 12
Signatures 12
Receiving Payment 13
Checkwriting 13
Redemption Before Purchase
Instruments Clear 13
Accounts with Low Balances 13
SHAREHOLDER INFORMATION 13
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Voting Rights 13
Massachusetts Partnership Law 14
TAX INFORMATION 14
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Federal Income Tax 14
Connecticut Tax Considerations 15
Other State and Local Taxes 15
PERFORMANCE INFORMATION 16
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FINANCIAL STATEMENTS 17
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 33
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ADDRESSES Inside Back Cover
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SUMMARY OF FUND EXPENSES
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<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........................................ None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)........................................ None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)...................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)........... None
Exchange Fee................................................................. None
ANNUAL INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)............................................. 0.27%
12b-1 Fee.................................................................... None
Other Expenses............................................................... 0.32%
Total Institutional Service Shares Operating Expenses(2)................ 0.59%
</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
0.50%.
(2) The Total Institutional Service Shares Operating Expenses in the table above
are based on expenses expected during the fiscal year ending October 31,
1994. The Total Institutional Service Shares Operating Expenses were 0.57%
for the fiscal year ended October 31, 1993, and were 0.82% absent the
voluntary waiver of a portion of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES
WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "FEDERATED MUNICIPAL TRUST INFORMATION" AND
"INVESTING IN INSTITUTIONAL SERVICE SHARES." Wire-transferred redemptions of
less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
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<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. As noted in
the table above, the Fund charges no redemption fee for
Institutional Service Shares............................ $6 $19 $33 $ 74
</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.
CONNECTICUT MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 33.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
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1993 1992 1991 1990*
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<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
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INCOME FROM INVESTMENT OPERATIONS
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Net investment income 0.02 0.03 0.04 0.05
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LESS DISTRIBUTIONS
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Dividends to shareholders from net investment
income (0.02) (0.03) (0.04) (0.05)
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NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
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TOTAL RETURN** 1.96% 2.68% 4.04% 5.54%(a)
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RATIOS TO AVERAGE NET ASSETS
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Expenses 0.57% 0.56% 0.56% 0.48%(b)
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Net investment income 1.95% 2.66% 3.94% 5.32%(b)
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Expense waiver/reimbursement (c) 0.25% 0.30% 0.21% 0.28%(b)
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SUPPLEMENTAL DATA
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Net assets, end of period (000s omitted) $140,446 $140,118 $140,113 $138,378
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</TABLE>
* Reflects operations for the period from November 1, 1989 (date of initial
public investment), to October 31, 1990. The financial highlights presented
are historical information for the Fund, prior to the creation of separate
classes of shares.
** Based on net asset value which does not reflect sales load or redemption fee,
if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the financial statements)
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Trustees ("Trustees") have established one class of
shares, known as Institutional Service Shares. This prospectus relates only to
the Institutional Service Shares of the Fund.
Institutional Service Shares ("Shares") of the Fund are designed for the
investment of moneys held by financial institutions in an agency capacity. A
minimum initial investment of $25,000 over a 90-day period is required. The Fund
may not be a suitable investment for non-Connecticut taxpayers or retirement
plans since it invests primarily in Connecticut municipal securities.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal regular income tax and the Connecticut Personal Income Tax consistent
with stability of principal. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the investment
policies described in this prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than Connecticut.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of Connecticut municipal securities with remaining maturities of 13 months or
less at the time of purchase by the Fund. As a matter of investment policy,
which cannot be changed without approval of shareholders, the Fund invests its
assets so that at least 80% of its annual interest income is exempt from federal
regular income tax and Connecticut Personal Income Tax. The average maturity of
the securities in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days or less. Unless indicated otherwise, the investment policies may
be changed by the Trustees without the approval of shareholders. Shareholders
will be notified before any material changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by
or on behalf of the State of Connecticut and its political subdivisions and
financing authorities, and obligations of other states, territories and
possessions of the United States, including the District of Columbia, and any
political subdivision or financing authority of any of these, the income from
which is, in the opinion of
qualified legal counsel, exempt from both federal regular income tax and
Connecticut Personal Income Tax imposed upon non-corporate taxpayers. Examples
of Connecticut municipal securities include, but are not limited to:
- tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
- bond anticipating notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term notes;
- municipal commercial paper and other short-term notes;
- variable rate demand notes;
- municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
- participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
municipal securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days' prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS. The Fund may purchase interests in municipal
securities from financial institutions such as commercial and investment
banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying municipal securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and may be considered to be illiquid. They may take the form
of a lease, an installment purchase contract, a conditional sales contract,
or a participation certificate on any of the above.
RATINGS. The Connecticut municipal securities in which the Fund invests must
either be rated in one of the two highest short-term rating categories by one or
more nationally recognized statistical rating organizations ("NRSROs") or be of
comparable quality to securities having such ratings. An NRSRO's two highest
rating categories are determined without regard for sub-categories and
gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc.
("Moody's"), or FIN-1+, FIN-1 and FIN-2 by Fitch Investors
Service, Inc. ("Fitch") are all considered rated in one of the two highest
short-term rating categories. The Fund will follow applicable regulations in
determining whether a security rated by more than one NRSRO can be treated as
being in one of the two highest short-term rating categories; currently, such
securities must be rated by two NRSROs in one of their two highest categories.
See "Regulatory Compliance."
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit-enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Trustees, certain restricted securities are considered
liquid. To the extent restricted securities are deemed to be illiquid, the Fund
will limit their purchase, together with other securities considered to be
illiquid, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Connecticut
municipal securities on a when-issued or delayed delivery basis. In when-issued
and delayed delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term non-Connecticut municipal
tax-exempt obligations or other taxable temporary investments. All temporary
investments will satisfy the same credit quality standards as the Fund's
acceptable investments. See "Ratings" above. Temporary investments include:
notes issued by or on behalf of municipal or corporate issuers; marketable
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; and repurchase agreements (arrangements in which banks,
broker/dealers, and other recognized
financial institutions sell the Fund a temporary investment and agree to
repurchase it at a mutually agreed upon time and price).
Although the Fund is permitted to make taxable temporary investments, there is
no current intention of generating income subject to federal regular income tax
or the Connecticut Personal Income Tax.
CONNECTICUT MUNICIPAL SECURITIES
Connecticut municipal securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Connecticut municipal securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS
Some securities dealers are willing to sell municipal securities to the Fund
accompanied by their commitments to repurchase the municipal securities prior to
maturity, at the Fund's option, for the amortized cost of the municipal
securities at the time of repurchase. These arrangements are not used to protect
against changes in the market value of municipal securities. They permit the
Fund, however, to remain fully invested and still provide liquidity to satisfy
redemptions. The cost of municipal securities accompanied by these "standby"
commitments could be greater than the cost of municipal securities without such
commitments. Standby commitments are not marketable or otherwise assignable and
have value only to the Fund. The default or bankruptcy of a securities dealer
giving such a commitment would not affect the quality of the municipal
securities purchased. However, without a standby commitment, these securities
could be more difficult to sell. The Fund enters into standby commitments only
with those dealers whose credit the investment adviser believes to be of high
quality.
CONNECTICUT INVESTMENT RISKS
Yields on Connecticut municipal securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the State of Connecticut or its
municipalities could impact the Fund's portfolio. The ability of the Fund to
achieve its investment objective also depends on the continuing ability of the
issuers of Connecticut municipal securities and demand
features for such securities, or the credit enhancers of either, to meet their
obligations for the payment of interest and principal when due.
Investing in Connecticut municipal securities which meet the Fund's quality
standards may not be possible if the State of Connecticut or its municipalities
do not maintain their high quality, short-term credit ratings. In addition,
certain Connecticut constitutional amendments, legislative measures, executive
orders, administrative regulations, and voter initiatives could result in
adverse consequences affecting Connecticut municipal securities. An expanded
discussion of the current economic risks associated with the purchase of
Connecticut municipal securities is contained in the Statement of Additional
Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified investment portfolio because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, with
regard to at least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 15% of the value of total assets to secure such
borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following investment limitation, however, can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective.
The Fund will not invest more than 5% of its total assets in industrial
development bonds or other municipal securities when the payment of principal
and interest is the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations, including the
operation of any predecessor.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. In particular, the Fund
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security
as having received the requisite short-term ratings by NRSROs, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST INFORMATION
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MANAGEMENT OF FEDERATED MUNICIPAL TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of
Trustees is responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .50 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for the voluntary waiver of the advisory
fee by the adviser, the adviser may voluntarily waive some or all of the
advisory fee. This does not include reimbursement to the Fund of any
expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The adviser can terminate this voluntary waiver
of expenses at any time at its sole discretion. The adviser has also
undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the Trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATIVE ARRANGEMENTS. The distributor may select brokers and dealers to
provide distribution and administrative services. The distributor may also
select administrators (including depository institutions such as commercial
banks and savings and loan associations) to provide administrative services.
These administrative services include, but are not limited to, distributing
prospectuses and other information, providing accounting assistance, and
communicating or facilitating purchases and redemptions of Shares.
Brokers, dealers, and administrators will receive fees from the distributor
based upon Shares owned by their clients or customers. The fees are calculated
as a percentage of the average aggregate net asset value of shareholder accounts
during the period for which the brokers, dealers, and administrators provide
services. Any fees paid for these services by the distributor will be reimbursed
by the adviser.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings and loan association) to become an underwriter or
distributor of securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Board of Trustees will consider appropriate changes in the administrative
services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary
of Federated Investors, provides the Fund with the administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services, Inc., provides these at approximate cost.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
NET ASSET VALUE
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The Fund attempts to stabilize the net asset value of its Shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per Share is determined by adding the interest of the Shares in the value
of all securities and other assets of the Fund, subtracting the interest of the
Shares in the liabilities of the Fund and those attributable to Shares, and
dividing the remainder by the number of Shares outstanding.
The Fund, of course, cannot guarantee that its net asset value will always
remain at $1.00 per Share.
INVESTING IN INSTITUTIONAL SERVICE SHARES
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SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open for business. Shares may be purchased either by
wire or by mail. The Fund reserves the right to reject any purchase request.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) that same day. Federal funds should be wired as follows: State Street Bank
and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
Connecticut Municipal Cash Trust--Institutional Service Shares; Fund Number
(this number can be found on the account statement or by contacting the Fund);
Group Number or Order Number; Nominee or Institution Name; and ABA Number
011000028. Shares cannot be purchased by wire on days on which the New York
Stock Exchange is closed and on federal holidays restricting wire transfers.
BY MAIL. To purchase Shares by mail, send a check made payable to Connecticut
Municipal Cash Trust--Institutional Service Shares to the Trust's transfer
agent, Federated Services Company, c/o State Street Bank and Trust Company, P.O.
Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered
received when payment by check is converted by State Street Bank into federal
funds. This is normally the next business day after State Street Bank receives
the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund. Individual accounts
established through a bank or broker may be subject to a different minimum
investment requirement.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a bank or broker may be charged an additional service fee by that
bank or broker.
The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Financial
institutions holding Shares in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the financial institution with regard to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the day after the check is converted, upon
instruction of the transfer agent, into federal funds. Dividends are
automatically reinvested on payment dates in additional Shares unless cash
payments are requested on an application or by contacting the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses,
if any, could result in a decrease in dividends. If, for some extraordinary
reason, the Fund realizes net long-term or short-term capital gains, it will
distribute them at least once every 12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund. Redemption
requests received before 12:00 noon (Eastern time) are not entitled to that
day's dividend. A daily dividend will be paid on Shares redeemed if the
redemption request is received after 12:00 noon (Eastern time). However, the
proceeds are not wired until the following business day. If at any time the Fund
shall determine it necessary to terminate or modify this method of redemption,
shareholders will be promptly notified.
An authorization form permitting the Fund to accept redemption requests by
telephone must first be completed. Authorization forms and information on this
service are available from Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, shareholders may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as Written Requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name and class of shares,
his account number, and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions
that are members of a signature guarantee program. The Fund and its transfer
agent reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request provided that the transfer agent has received payment
for the Shares from the shareholder.
CHECKWRITING. At the shareholder's request, State Street Bank will establish a
checking account for redeeming Shares. For further information, contact
Federated Securities Corp.
A fee may be charged for this service. With a Fund checking account, Shares may
be redeemed simply by writing a check. The redemption will be made at the net
asset value on the date that State Street Bank presents the check to the Fund. A
check may not be written to close an account. If a shareholder wishes to redeem
Shares and have the proceeds available, a check may be written and negotiated
through the shareholder's bank. Checks should never be sent to State Street Bank
to redeem Shares. Cancelled checks are returned to the shareholder each month.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, the proceeds from the redemption of those
Shares are not available, and the Shares may not be exchanged, until the Fund or
its agents are reasonably certain that the purchase check has cleared, which
could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote. As of November 29, 1993, Putnam Trust Company, Greenwich,
Connecticut, owned 26.18% of the voting securities of the Institutional Service
Shares of the Fund, and, therefore, may, for certain purposes, be deemed to
control the Institutional Service Shares of the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of all series in the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for such
acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument that the
Trust or its Trustees enter into or sign.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, currently equal to up to 28% of alternative minimum
taxable income for individuals and 20% for corporations, applies when it exceeds
the regular tax for the taxable year. Alternative minimum taxable income is
equal to the regular taxable income of the taxpayer increased by certain "tax
preference" items not included in regular taxable income and reduced by only a
portion of the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal
bonds, including private activity bonds. Thus, should it purchase any such
bonds, a portion of the Fund's dividends may be treated as a tax preference
item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, 75% of the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
CONNECTICUT TAX CONSIDERATIONS
Under existing Connecticut law, dividends paid by the Fund will be exempt from
Connecticut state income tax on individuals, estates and trusts to the extent
that such dividends represent exempt-interest dividends as defined in the
Internal Revenue Code, and are derived from (i) obligations issued by or on
behalf of the State of Connecticut, any political subdivision thereof, or public
instrumentality, state or local authority, district, or similar public entity
created under the laws of the State of Connecticut, and (ii) obligations, the
income of which may not, by federal law, be taxed by a state, such as bonds
issued by the government of Puerto Rico. Conversely, to the extent that
distributions by the Fund are derived from other types of obligations, such
distributions will not be exempt from the Connecticut state income tax.
Distributions from the Fund to a shareholder subject to the Connecticut
corporation business tax are not eligible for the dividends received deduction
under the Connecticut corporation business tax and, therefore, are included in
the taxable income of a taxpayer to the extent such distributions are treated as
either exempt-interest dividends or capital gains dividends for federal income
tax purposes.
All other distributions from the Fund are eligible for the Connecticut
corporation business tax dividends received deduction.
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from regular state income taxes in
states other than Connecticut or from personal property taxes. State laws differ
on this issue and shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield, effective yield, and
tax-equivalent yield for Institutional Service Shares.
The yield of Institutional Service Shares represents the annualized rate of
income earned on an investment in Institutional Service Shares over a seven-day
period. It is the annualized dividends earned during the period on the
investment, shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but, when annualized, the income earned by an
investment in Institutional Service Shares is assumed to be reinvested daily.
The effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. The tax-equivalent yield of
Institutional Service Shares is calculated similarly to the yield, but is
adjusted to reflect the taxable yield that the Institutional Service Shares
would have had to earn to equal their actual yield, assuming a specific tax
rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Institutional Service Shares after reinvesting all income
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
From time to time, the Fund may advertise the performance of Institutional
Service Shares using certain reporting services and/or compare the performance
of Institutional Service Shares to certain indices.
CONNECTICUT MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------- --------- ------------
<C> <C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--102.0%
- ------------------------------------------------------------------------
CONNECTICUT--91.4%
-------------------------------------------------------
$11,000,000 Connecticut Development Authority Solid Waste Disposal
Facility Weekly VRDNs (Series A)/(Exeter Energy)/
(Sanwa Bank Ltd. LOC)/(Subject to AMT) A-1+ $ 11,000,000
-------------------------------------------------------
1,000,000 Connecticut Development Authority Solid Waste Disposal
Facility Weekly VRDNs (Series B)/(Exeter Energy)/
(Sanwa Bank Ltd. LOC)/(Subject to AMT) A-1+ 1,000,000
-------------------------------------------------------
7,499,000 Connecticut Development Authority Solid Waste Disposal
Facility Weekly VRDNs (Series C)/(Exeter Energy)/
(Sanwa Bank Ltd. LOC)/(Subject to AMT) A-1+ 7,499,000
-------------------------------------------------------
2,250,000 Connecticut Development Authority Weekly VRDNs
(C.E.M. Corp.)/(Barclays Bank PLC LOC)/
(Subject to AMT) P-1 2,250,000
-------------------------------------------------------
5,200,000 Connecticut Development Authority Weekly VRDNs (Capital
District Energy Center)/(Canadian Imperial Bank of
Commerce LOC)/(Subject to AMT) P-1 5,200,000
-------------------------------------------------------
5,200,000 Connecticut Development Authority Weekly VRDNs
(Connecticut Light & Power Co.)/(Deutsche Bank AG LOC) VMIG1 5,200,000
-------------------------------------------------------
500,000 Connecticut Development Authority Weekly VRDNs
(Connecticut Light & Power Co.)/(Deutsche Bank AG
LOC)/(Subject to AMT) VMIG1 500,000
-------------------------------------------------------
4,700,000 Connecticut Development Authority Weekly VRDNs
(Independence Living, Inc.)/(Credit Commercial
de France LOC) VMIG1 4,700,000
-------------------------------------------------------
</TABLE>
CONNECTICUT MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------- --------- ------------
<C> <C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
CONNECTICUT--CONTINUED
-------------------------------------------------------
$ 3,225,000 Connecticut Development Authority Weekly VRDNs
(Jewish Community Center of Greater New Haven)/
(Fleet National Bank LOC) P-1 $ 3,225,000
-------------------------------------------------------
1,759,600 Connecticut Development Authority Weekly VRDNs
(RSA Corp.)/(Barclays Bank PLC LOC)/(Subject to AMT) P-1 1,759,600
-------------------------------------------------------
2,000,000 Connecticut Development Authority Weekly VRDNs (Series
1985)/(Airport Hotel)/(RK Bradley Associates Ltd.
Partnership)/(Daiwa Bank Ltd. and Royal Bank of Canada
LOCs) VMIG1 2,000,000
-------------------------------------------------------
4,330,000 Connecticut Development Authority 3.00% CP (Connecticut
Light & Power Co.)/(Long Term Credit Bank of Japan Ltd.
LOC)/(Subject to AMT), Mandatory Tender 11/1/93 P-2 4,330,000
-------------------------------------------------------
2,400,000 Connecticut State Development Authority Weekly VRDNs
(Banta Associates)/(Marine Midland Bank N.A. and Hong
Kong Shang Hai Banking Corp. LOCs)/(Subject to AMT) P-1 2,400,000
-------------------------------------------------------
7,000,000 Connecticut State Development Authority, PCR Weekly
VRDNs (Series 1993A)/(Western Massachusetts Electrical
Co.)/(Union Bank of Switzerland LOC) A-1+ 7,000,000
-------------------------------------------------------
5,000,000 Connecticut State Development Authority, Solid Waste
Disposal Weekly VRDNs (Series 1993)/(Rand-Whitney
Containerboard Ltd. Partnership)/(Chase Manhattan Bank
N.A. LOC)/(Subject to AMT) A-1 5,000,000
-------------------------------------------------------
2,000,000 Connecticut State Development Health Care Facilities
Weekly VRDNs (Independence Living, Inc.)/
(Daiwa Bank Ltd. LOC) VMIG1 2,000,000
-------------------------------------------------------
1,800,000 Connecticut State HEFA Weekly VRDNs (Charlotte
Hungerfield Hospital)/(Mitsubishi Bank Ltd. LOC) VMIG1 1,800,000
-------------------------------------------------------
</TABLE>
CONNECTICUT MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------- --------- ------------
<C> <C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
CONNECTICUT--CONTINUED
-------------------------------------------------------
$ 5,300,000 Connecticut State HEFA, 2.35% CP (Windham Community
Memorial Hospital)/(Banque Paribas LOC),
Mandatory Tender 11/17/93 A-1+ $ 5,300,000
-------------------------------------------------------
3,025,000 Connecticut State HEFA, 2.40% CP (Series L)/
(Yale University), Mandatory Tender 11/10/93 A-1+ 3,025,000
-------------------------------------------------------
2,300,000 Connecticut State HEFA, 2.60% CP (Series N)/
(Yale University Guaranty), Mandatory Tender 2/15/94 A-1+ 2,300,000
-------------------------------------------------------
3,200,000 Connecticut State HFA, 2.45% CP (Series 1990D)/
(Subject to AMT), Mandatory Tender 11/16/93 A-1+ 3,200,000
-------------------------------------------------------
1,600,000 Connecticut State HFA, 2.50% CP (Series 1990D)/
(Subject to AMT), Mandatory Tender 11/12/93 A-1+ 1,600,000
-------------------------------------------------------
3,305,000 Connecticut State HFA, 2.50% CP (Series 1990D)/
(Subject to AMT), Mandatory Tender 11/22/93 A-1+ 3,305,000
-------------------------------------------------------
4,750,000 Connecticut State HFA, 2.60% CP (Series 1990C)/
(Subject to AMT), Mandatory Tender 12/14/93 A-1+ 4,750,000
-------------------------------------------------------
5,600,000 Connecticut State Resource Recovery Authority, 2.85%
RANs (Fleet National Bank LOC), 6/23/94 P-1 5,608,748
-------------------------------------------------------
3,500,000 Connecticut State Special Assessment Unemployment
Compensation Advance Fund, 3.00% Revenue Bond (Series
1993C)/(FGIC Insured), Mandatory Tender 7/1/94 A-1+ 3,504,491
-------------------------------------------------------
2,200,000 Connecticut State Transportation Infrastructure
Authority Weekly VRDNs (Industrial Bank of Japan, Ltd.
LOC) A-1+ 2,200,000
-------------------------------------------------------
4,000,000 Connecticut State, 5.25% Economic Recovery Bonds,
6/15/94 AA- 4,062,912
-------------------------------------------------------
4,000,000 ** East Hampton, CT, 2.55% BANs, 7/15/94 NR(3) 4,001,360
-------------------------------------------------------
1,500,000 East Lyme, CT, 2.56% BANs, 8/5/94 NR(3) 1,500,652
-------------------------------------------------------
5,500,000 Hartford, CT, Redevelopment Authority Weekly VRDNs
(Underwood Towers)/(FSA Insured) A-2 5,500,000
-------------------------------------------------------
</TABLE>
CONNECTICUT MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------- --------- ------------
<C> <C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
CONNECTICUT--CONTINUED
-------------------------------------------------------
$ 3,000,000 Meriden, CT, 2.53% BANs, 2/17/94 NR(3) $ 3,000,258
-------------------------------------------------------
1,963,000 Meriden, CT, 2.60% BANs, 2/17/94 NR(3) 1,963,565
-------------------------------------------------------
1,900,000 New Haven, CT, Weekly VRDNs (Starter Sportswear)/
(National Westminster Bank PLC LOC)/(Subject to AMT) P-1 1,900,000
-------------------------------------------------------
3,000,000 Plainfield, CT, 3.35% TANs, 5/10/94 NR 3,008,470
-------------------------------------------------------
1,805,000 Waterbury, CT, 3.70% BANs (Fleet National Bank LOC),
12/2/93 P-1 1,806,947
------------------------------------------------------- ------------
Total 128,401,003
------------------------------------------------------- ------------
PUERTO RICO--10.6%
-------------------------------------------------------
5,400,000 Government Development Bank of Puerto Rico Weekly VRDNs
(Credit Suisse and Sumitomo Bank Ltd. LOCs) A-1+ 5,400,000
-------------------------------------------------------
5,000,000 Puerto Rico Industrial, Medical and Environmental PCA,
2.90% Annual TOBs (Series 1983A)/(Reynolds Metals
Co.)/(ABN AMRO Bank N.V. LOC), Optional Tender 9/1/94 A-1+ 5,004,039
-------------------------------------------------------
4,495,000 Puerto Rico Maritime Shipping Authority, 2.35% CP
(Credit Suisse LOC), Mandatory Tender 1/13/94 A-1+ 4,495,000
------------------------------------------------------- ------------
Total 14,899,039
------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST) $143,300,042+
------------------------------------------------------- ------------
</TABLE>
* See Notes to Portfolio of Investments.
** When-issued security (Note 2D).
+ Also represents cost for federal tax purposes.
CONNECTICUT MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C> <C>
AMT -- Alternative Minimum Tax
BANs -- Bond Anticipation Notes
CP -- Commercial Paper
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
HEFA -- Health and Education Facilities Authority
HFA -- Housing Finance Authority/Agency
LOC -- Letter of Credit
LOCs -- Letters of Credit
PCA -- Pollution Control Authority
PCR -- Pollution Control Revenue
RANs -- Revenue Anticipation Notes
TANs -- Tax Anticipation Notes
TOBs -- Tender Option Bonds
VRDNs -- Variable Rate Demand Notes
</TABLE>
Note: The categories of investments are shown as a percentage of net assets
($140,446,211) at October 31, 1993.
(See Notes which are an integral part of the Financial Statements)
CONNECTICUT MUNICIPAL CASH TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
S&P
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S
Moody's short-term ratings are designated Moody's Investment Grade (MIG or VMIG
(see below)). The purpose of the MIG or VMIG ratings is to provide investors
with a simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
FITCH
Fitch's short-term ratings place greater emphasis on the existence of liquidity
necessary to meet the issuer's obligations in a timely manner.
F-1 Strongest degree of assurance for timely payment. Those issues determined to
provide exceptionally strong credit quality are given a plus (+)
designation.
F-2 Notes reflecting a degree of assurance for timely payment only slightly less
in degree than the highest category.
VARIABLE RATE DEMAND NOTES (VRDNS)
AND
TENDER OPTION BONDS (TOBS)
RATINGS
S&P
Standard & Poor's assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-1+, AA/A-1+, and A/A-1. (The
definitions for the long-term and the short-term ratings are provided below.)
MOODY'S
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity.
In this case, two ratings are usually assigned (for example, Aaa/VMIG-1); the
first representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the second representing an evaluation of
the degree of risk associated with the demand feature. The VMIG rating can be
assigned a 1 or 2 designation using the same definitions described above for the
MIG rating.
FITCH
Fitch usually assigns two ratings to long-term debt issues that include
provisions for a variable rate demand feature. The long-term rating addresses
the ability of the obligor to pay debt service and the short-term rating
addresses the timely payment of the demand feature. Examples of rating
designations are as follows: AAA/F-1+, AA/F-1+, and A/F-1. (The definitions for
the long-term and short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
S&P
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
sign designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."
MOODY'S
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
The following is an explanation of the Fitch ratings. These ratings are not
referenced in the Portfolio of Investments.
FITCH
F-1 Issues assigned this rating reflect a strong degree of assurance for timely
payment. Those issuers determined to possess the strongest degree of
assurance for timely payment are denoted with a plus (+) sign designation.
F-2 Issuers carrying this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the "F-1+" and
"F-1" categories.
LONG-TERM DEBT RATINGS
(INVESTMENT GRADE)
S&P
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB Debt rated "BBB" is regarding as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
principal and interest than debt rated in higher ratings categories.
MOODY'S
AAA Bonds that are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large margin and
principal is secure. While the various protective elements are likely to
change, such changes which can be foreseen are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds that are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in AAA securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in AAA securities.
A Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment some time in the
future.
BAA Bonds which are rated BAA are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
FITCH
AAA Bonds that are rated AAA are of the highest credit quality. The obligor has
an exceptionally strong ability to pay debt service.
AA Bonds that are rated AA are of very high quality. The obligor has a very
strong ability to pay debt service. Debt rated in this category may also
have a (+) or (-) sign with a rating to indicate the relative position
within the rating category.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to
be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and
therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
NR indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P, Moody's, or Fitch with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated in one of the two highest short-term ratings
categories by a nationally recognized statistical rating organization.
NR (1) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by
Fitch.
NR (2) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AA" by Standard & Poor's, "Aa" Moody's or "AA" by Fitch.
NR (3) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "A" by Standard & Poor's, Moody's or Fitch.
NR (4) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by
Fitch.
CONNECTICUT MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $143,300,042
- --------------------------------------------------------------------------------
Cash 725,383
- --------------------------------------------------------------------------------
Interest receivable 624,352
- --------------------------------------------------------------------------------
Receivable for Fund shares sold 2,936
- --------------------------------------------------------------------------------
Deferred expenses (Note 2E) 9,489
- -------------------------------------------------------------------------------- ------------
Total assets 144,662,202
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased $4,001,360
- -------------------------------------------------------------------
Dividends payable 158,306
- -------------------------------------------------------------------
Payable for Fund shares redeemed 4,485
- -------------------------------------------------------------------
Accrued expenses and other liabilities 51,840
- ------------------------------------------------------------------- ----------
Total liabilities 4,215,991
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 140,446,211 shares of beneficial interest outstanding $140,446,211
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
($140,446,211 / 140,446,211 shares of beneficial interest outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CONNECTICUT MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------
Interest Income (Note 2B) $3,349,553
- ----------------------------------------------------------------------------------
EXPENSES--
- ----------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 666,093
- ---------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 268,954
- ---------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 62,368
- ---------------------------------------------------------------------
Trustees' fees 3,185
- ---------------------------------------------------------------------
Auditing fees 15,663
- ---------------------------------------------------------------------
Legal fees 17,367
- ---------------------------------------------------------------------
Printing and postage 12,175
- ---------------------------------------------------------------------
Fund share registration costs 23,708
- ---------------------------------------------------------------------
Taxes 523
- ---------------------------------------------------------------------
Insurance premiums 15,755
- ---------------------------------------------------------------------
Miscellaneous 8,366
- --------------------------------------------------------------------- ----------
Total expenses 1,094,157
- ---------------------------------------------------------------------
DEDUCT--Waiver of investment advisory fee (Note 5) 337,400
- --------------------------------------------------------------------- ----------
Net Expenses 756,757
- ---------------------------------------------------------------------------------- ----------
Net investment income $2,592,796
- ---------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CONNECTICUT MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
<S> <C> <C>
1993 1992
------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 2,592,796 $ 3,446,798
- -------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- --------------------------------------------------------------
Dividends to shareholders from net investment income:
- --------------------------------------------------------------
Institutional Service Shares (2,592,796) (3,439,076)
- --------------------------------------------------------------
Cash Series Shares -- (7,722)
- -------------------------------------------------------------- ------------- -------------
Change in net assets from distributions to shareholders (2,592,796) (3,446,798)
- -------------------------------------------------------------- ------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- --------------------------------------------------------------
Proceeds from sale of shares 299,253,615 236,618,493
- --------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 931,684 941,296
- --------------------------------------------------------------
Cost of shares redeemed (300,063,512) (237,484,656)
- -------------------------------------------------------------- ------------- -------------
Change in net assets from Fund share transactions 121,787 75,133
- -------------------------------------------------------------- ------------- -------------
Change in net assets 121,787 75,133
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 140,324,424 140,249,291
- -------------------------------------------------------------- ------------- -------------
End of period $ 140,446,211 $ 140,324,424
- -------------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CONNECTICUT MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company
with several portfolios. The financial statements included herein are only those
of Connecticut Municipal Cash Trust (the "Fund"). The financial statements of
the other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
From December 31, 1990, until November 6, 1992, the Fund provided two classes of
shares ("Institutional Service Shares" and "Cash Series Shares"). Cash Series
Shares were identical in all respects to Institutional Service Shares except
that Cash Series Shares were sold pursuant to a distribution plan ("Plan")
adopted in accordance with Investment Company Act Rule 12b-1. Under the Plan,
the Fund paid Federated Securities Corp. (the "Distributor") a fee at an annual
rate up to .40 of 1% of the average daily net asset value of the Cash Series
Shares to finance any activity which was principally intended to result in the
sale of Cash Series Shares. As of November 6, 1992, the Plan was terminated by
the Trustees of the Trust. As a result of the termination of the Plan, fee
accruals under the Plan have been discontinued.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best
method currently available for valuing portfolio securities is amortized cost. The Fund's
use of the amortized cost method to value its portfolio securities is conditioned on its
compliance with Rule 2a-7 under the Investment Company Act of 1940.
Since the Fund may invest a substantial portion of its assets in issuers located in one
state, it will be more susceptible to factors adversely affecting issuers of that state,
than would be a comparable general tax-exempt mutual fund. In order to reduce the risk
associated with such factors, at October 31, 1993, 75.1% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance institutions. The aggregate
percentages by financial and assurance institutions ranged from 1.3% to 13.6% of total
investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income includes
interest earned net of premium, and original issue discount as required by the Internal
Revenue Code.
</TABLE>
CONNECTICUT MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal
Revenue Code (the "Code") applicable to investment companies and distribute to
shareholders each year all of its net income. Accordingly, no provision for federal tax
is necessary. Dividends paid by the Fund representing net interest received on tax-exempt
municipal securities are not includable by shareholders as gross income for federal
income tax purposes because the Fund intends to meet certain requirements of the Code
applicable to regulated investment companies which will enable the Fund to pay
exempt-interest dividends. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986 may be considered a tax preference item to
shareholders for the purpose of computing the alterative minimum tax.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. To the extent the Fund engages in such transactions, it
will do so for the purpose of acquiring portfolio securities consistent with its
investment objective and policies and not for the purpose of investment leverage. The
Fund will record a when-issued security and the related liability on the trade date.
Until the securities are received and paid for, the Fund will maintain security positions
such that sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are marked to
market daily and begin earning interest on the settlement date.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its
shares in its first fiscal year, excluding the initial expense of registering the shares
have been deferred and are being amortized using the straight-line method through
November, 1994.
F. OTHER--Investment transactions are accounted for on the date of the transaction.
</TABLE>
(3) DIVIDENDS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash, or in additional
shares at the net asset value on the payable date.
CONNECTICUT MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1993, capital paid-in aggregated $140,446,211.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1993 1992
------------ ------------
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES*
- --------------------------------------------------------------
Shares outstanding, beginning of period 140,117,793 140,112,250
- --------------------------------------------------------------
Shares sold 299,251,726 235,989,190
- --------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 931,684 933,686
- --------------------------------------------------------------
Shares redeemed (299,854,992) (236,917,333)
- -------------------------------------------------------------- ------------ ------------
Shares outstanding, end of period 140,446,211 140,117,793
- -------------------------------------------------------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1993 1992
------------ ------------
<S> <C> <C>
CASH SERIES SHARES*
- --------------------------------------------------------------
Shares outstanding, beginning of period 206,631 137,041
- --------------------------------------------------------------
Shares sold 1,889 629,303
- --------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared -- 7,610
- --------------------------------------------------------------
Shares redeemed (208,520) (567,323)
- -------------------------------------------------------------- ------------ ------------
Shares outstanding, end of period -- 206,631
- -------------------------------------------------------------- ------------ ------------
</TABLE>
* Beginning November 7, 1992, shares of the Fund were sold without class
designation.
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Management, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to 0.50 of 1% of the Fund's
average daily net assets. Adviser has voluntarily agreed to waive a portion of
its fee. Adviser can modify or terminate this voluntary waiver of expense at any
time at its sole discretion. For the year ended October 31, 1993, the investment
advisory fee amounted to $666,093, of which $337,400 was waived in accordance
with such undertaking.
Organizational expenses ($41,950) were borne initially by the Adviser. The Fund
has agreed to pay the Adviser, at an annual rate of .005 of 1% of average daily
net assets, until the organization expenses initially borne by the Adviser are
reimbursed, or the expiration of five years after November 1, 1989, the
CONNECTICUT MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
date the Trust's portfolio became effective, whichever occurs earlier. During
the year ended October 31, 1993, the Fund paid the Adviser $6,658 pursuant to
the agreement.
During the year ended October 31, 1993, the Fund engaged in purchase and sale
transactions with other funds advised by the Adviser pursuant to Rule 17a-7 of
the Investment Company Act of 1940 amounting to $146,919,000 and $155,600,000,
respectively. These purchases and sales were conducted on an arms-length basis
insofar as they were transacted for cash consideration only, at independent
current market prices and without brokerage commissions, fees or other
remuneration.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Certain Officers and Trustees of the
Trust are Officers and Directors of the above corporations.
(6) CURRENT CREDIT RATINGS
Current credit ratings and related notes are unaudited.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST (Connecticut Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of
Connecticut Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
investments, as of October 31, 1993, the related statement of operations for the
year then ended, and the statement of changes in net assets, and the financial
highlights (see page 2 of the prospectus) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1993, by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Connecticut Municipal Cash Trust, an investment portfolio of Federated Municipal
Trust, as of October 31, 1993, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for the
periods presented in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania
December 13, 1993
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Connecticut Municipal Cash Trust
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ----------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ----------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ----------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ----------------------------------------------------------------------------------------------------
</TABLE>
CONNECTICUT MUNICIPAL
CASH TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Non-Diversified Portfolio of
Federated Municipal Trust, an Open-End
Management Investment Company
December 31, 1993
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
9101004A-ISS (12/93)
CONNECTICUT MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Institutional Service Shares of Connecticut Municipal Cash Trust (the "Fund")
dated December 31, 1993. This Statement is not a prospectus itself. To receive a
copy of the prospectus, write or call Federated Municipal Trust.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1993
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Acceptable Investments 1
When-Issued and Delayed
Delivery Transactions 1
Temporary Investments 2
Investment Limitations 2
Connecticut Investment Risks 4
FEDERATED MUNICIPAL TRUST MANAGEMENT 4
- ---------------------------------------------------------------
Officers and Trustees 4
The Funds 6
Fund Ownership 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 7
- ---------------------------------------------------------------
Adviser to the Fund 7
Advisory Fees 7
ADMINISTRATIVE SERVICES 8
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 8
- ---------------------------------------------------------------
PURCHASING SHARES 8
- ---------------------------------------------------------------
Conversion to Federal Funds 8
DETERMINING NET ASSET VALUE 9
- ---------------------------------------------------------------
Use of the Amortized Cost Method 9
REDEEMING SHARES 10
- ---------------------------------------------------------------
Redemption in Kind 10
TAX STATUS 10
- ---------------------------------------------------------------
The Fund's Tax Status 10
YIELD 10
- ---------------------------------------------------------------
EFFECTIVE YIELD 10
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 11
- ---------------------------------------------------------------
Tax-Equivalency Table 11
PERFORMANCE COMPARISONS 11
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was
established as a Massachusetts business trust under a Declaration of Trust dated
September 1, 1989.
Shares of the Fund are offered in one class, known as Institutional Service
Shares ("Shares"). This Statement of Additional Information relates to the
Institutional Service Shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income exempt from federal
regular income tax and the Connecticut Personal Income Tax consistent with
stability of principal. The investment objective cannot be changed without
approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Connecticut and of other states, territories and possessions of the United
States, including the District of Columbia, and any political subdivision or
financing authority of any of these, the income from which is, in the opinion of
qualified legal counsel, exempt from both federal regular income tax and
Connecticut Personal Income Tax imposed upon non-corporate taxpayers.
When determining whether a Connecticut municipal security presents minimal
credit risks, the investment adviser considers the creditworthiness of the
issuer of the security, the issuer of a demand feature if the Fund has the
unconditional right to demand payment for the security, or the guarantor of
payment by either of those issuers.
If a security loses its rating or the security's rating is reduced below the
required minimum after the Fund purchased it, the Fund is not required to sell
the security. The investment adviser considers this event, however, in its
determination of whether the Fund should continue to hold the security in its
portfolio. If ratings made by Moody's Investors Services, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") change because of changes in those
organizations or in their rating systems, the Fund will try to use comparable
ratings as standards in accordance with the investment policies described in the
Fund's prospectus.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests which represent undivided proportional interests in lease
payments by a governmental or nonprofit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that
the participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they became
due. In the event of a default or failure of appropriation, unless the
participation interests are credit enhanced, it is unlikely that the
participants would be able to obtain an acceptable substitute source of
payment.
Under the criteria currently established by the Board of Trustees
("Trustees"), the Fund's investment adviser must consider the following
factors in determining the liquidity of municipal lease securities: (1)
the frequency of trades and quotes for the security; (2) the volatility
of quotations and trade prices for the security; (3) the number of
dealers willing to purchase or sell the security and the number of
potential purchasers; (4) dealer undertakings to make a market in the
security; (5) the nature of the security and the nature of the
marketplace trades; (6) the rating of the security and the financial
condition and prospects of the issuer of the security; (7) such other
factors as may be relevant to the Fund's ability to dispose of the
security; (8) whether the lease can be terminated by the lessee; (9) the
potential recovery, if any, from a sale of the leased property upon
termination of the lease; (10) the lessee's general credit strength; (11)
the likelihood that the lessee will discontinue appropriating funding for
the leased property because the property is no longer deemed essential to
its operations; and (12) any credit enhancement or legal recourse
provided upon an event of nonappropriation or other termination of the
lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
- --------------------------------------------------------------------------------
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
The Fund may engage in these transactions to an extent that would cause the
segregation of an amount up to 20% of the total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in high quality temporary investments during times of
unusual market conditions for defensive purposes and to maintain liquidity.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale
to repurchase them at a mutually agreed upon time and price within one
year from the date of acquisition. The Fund or its custodian will take
possession of the securities subject to repurchase agreements and these
securities will be marked to market daily. To the extent that the
original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund will only enter
into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's
investment adviser to be creditworthy pursuant to guidelines established
by the Trustees.
From time to time, such as when suitable Connecticut municipal securities are
not available, the Fund may maintain a portion of its assets in cash. Any
portion of the Fund's assets maintained in cash will reduce the amount of assets
in Connecticut municipal securities and thereby reduce the Fund's yield.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for the
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money in amounts up to one-third of the value of its total assets,
including the amounts borrowed. The Fund will not borrow money for
investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess of 5% of
its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge.
DIVERSIFICATION OF INVESTMENTS
With regard to at least 50% of its total assets, no more than 5% of its
total assets are to be invested in the securities of a single issuer, and
no more than 25% of its total assets are to be invested in the securities
of a single issuer at the close of each quarter of each fiscal year.
Under this limitation, each governmental subdivision, including states,
territories, possessions of the United States, or their political
subdivisions, agencies, authorities, instrumentalities, or similar
entities, will be considered a separate issuer if its assets and revenues
are separate from those of the governmental body creating it and the
security is backed only by its own assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
nongovernmental issuer are considered to be issued solely by that issuer.
If, in the case of an industrial development bond or government-issued
security, a governmental or other entity guarantees the security, such
guarantee would be
- --------------------------------------------------------------------------------
considered a separate security issued by the guarantor, as well as the
other issuer, subject to limited exclusions allowed by the Investment
Company Act of 1940.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of 1933.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or nonpublicly issued Connecticut municipal securities or
temporary investments or enter into repurchase agreements, in accordance
with its investment objective, policies, and limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of
the value of its assets in cash or cash items (including instruments
issued by a U.S. branch of a domestic bank or savings and loan having
capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment), securities issued or guaranteed by the U.S.
government, its agencies, or instrumentalities, or instruments secured by
these money market instruments, such as repurchase agreements.
The above investment limitations cannot be changed without shareholder approval.
The Fund does not consider the issuance of separate classes of shares to involve
the issuance of "senior securities" within the meaning of the investment
limitation set forth above. The following limitations, however, may be changed
by the Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, reorganization, or other
acquisition.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
industrial development bonds or other municipal securities where the
principal and interest are the responsibility of companies (or
guarantors, where applicable) with less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
DEALING IN PUTS AND CALLS
The Fund will not purchase or sell puts, calls, straddles, spreads, or
any combination of them, except that the Fund may purchase municipal
securities accompanied by agreements of sellers to repurchase them at the
Fund's option.
- --------------------------------------------------------------------------------
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs, or leases.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, certain restricted
securities not determined by the Trustees to be liquid, and
non-negotiable fixed time deposits with maturities over seven days.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its net assets during the coming fiscal year.
CONNECTICUT INVESTMENT RISKS
The Fund invests in obligations of Connecticut issuers which results in the
Fund's performance being subject to risks associated with the overall conditions
present within Connecticut (the "State"). The following information is a brief
summary of the recent prevailing economic conditions and a general summary of
the State's financial status. This information is based on official statements
relating to securities that have been offered by Connecticut issuers and from
other sources believed to be reliable but should not be relied upon as a
complete description of all relevant information.
The State has maintained relative fiscal balance for the last few fiscal years
after several years of deficits in the late 1980's when the State and national
economy entered a recession. The State enacted an individual income tax while
decreasing the sales tax in 1991 in an attempt to provide better stability to
the State's revenue sources. The State also benefits from a level of per capital
income that is about the highest in the country and a highly educated and
skilled population.
The Connecticut economy is largely composed of manufacturing (concentrated in
defense and aircraft) and service industries (such as insurance and finance)
that were robust and growing for much of the past two decades. Beginning in the
late 1980's, the national economy slowed down and entered a recession that has
affected several areas of the State's economy. Specifically, the cutbacks in the
defense and insurance industries and general corporate restructuring have
resulted in the loss of over 9% of the labor force.
The overall financial condition of the State can also be illustrated by changes
of its debt ratings. During the period in which the State has experienced
financial difficulties in the late 1980's, its general obligation long-term debt
ratings as determined by Moody's and S&P decreased from Aa1 and AA+,
respectively, to Aa and AA-.
The Fund's concentration in securities issued by the State and its political
subdivisions provides a greater level of risk than a fund which is diversified
across numerous states and municipal entities. The ability of the State or its
municipalities to meet their obligations will depend on the availability of tax
and other revenues; economic, political, and demographic conditions within the
State; and the underlying fiscal condition of the State and its municipalities.
FEDERATED MUNICIPAL TRUST MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Management,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, Inc., and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
John F. Donahue+* Chairman and Trustee Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Federated Advisers, Federated Management, and Federated Research;
Tower Director, AEtna Life and Casualty Company; Chief Executive Officer and
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company. Mr. Donahue is the father
of J. Christopher Donahue, Vice President of the Trust.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President,
Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate
Department Village Development Corporation; General Partner or Trustee in private
John R. Wood and real estate ventures in Southwest Florida; Director, Trustee, or
Associates, Inc., Realtors Managing General Partner of the Funds; formerly, President, Naples
3255 Tamiami Trail North Property Management, Inc.
Naples, FL
- --------------------------------------------------------------------------------------------------------------------------------
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza-- Director, Trustee, or Managing General Partner of the Funds; formerly,
23rd Floor Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Pittsburgh, PA Director, Ryan Homes, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director,
Concord, MA Blue Cross of Massachusetts, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
- --------------------------------------------------------------------------------------------------------------------------------
Glen R. Johnson* President Trustee, Federated Investors; President and/or Trustee of some of the
Federated Investors and Trustee Funds; staff member, Federated Securities Corp. and Federated
Tower Administrative Services, Inc.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly,
Boston, MA President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
- --------------------------------------------------------------------------------------------------------------------------------
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer
Learning Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
- --------------------------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Federated Management, and Federated Research; President and Director,
Tower Federated Administrative Services, Inc.; Trustee, Federated Services
Pittsburgh, PA Company; President or Vice President of the Funds; Director, Trustee, or
Managing General Partner of some of the Funds. Mr. Donahue is the son of
John F. Donahue, Chairman and Trustee of the Trust.
- --------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Director, Federated Securities Corp.; President or Vice President of the
Tower Funds; Director or Trustee of some of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice
Federated Investors and Treasurer President and Treasurer, Federated Advisers, Federated Management, and
Tower Federated Research; Trustee, Federated Services Company; Executive Vice
Pittsburgh, PA President, Treasurer, and Director, Federated Securities Corp.;
Chairman, Treasurer, and Director, Federated Administrative Services,
Inc.; Trustee or Director of some of the Funds; Vice President and
Treasurer of the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Trustee, Federated
Pittsburgh, PA Services Company; Executive Vice President, Secretary, and Director,
Federated Administrative Services, Inc.; Director and Executive Vice
President, Federated Securities Corp.; Vice President and Secretary of
the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors President, Federated Securities Corp.; President and Trustee, Federated
Tower Advisers, Federated Management, and Federated Research; Vice President
Pittsburgh, PA of the Funds; Director, Trustee, or Managing General Partner of some of
the Funds; formerly, Vice President, The Standard Fire Insurance Company
and President of its Federated Research Division.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940, as amended.
+ Member of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series,
Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT
Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated
Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed
Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Intermediate Municipal Trust; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund,
Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust, Inc.-1999;
Liberty U.S.
- --------------------------------------------------------------------------------
Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust;
Mark Twain Funds; Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Trust; Municipal Securities Income Trust; New York Municipal Cash
Trust; 111 Corcoran Funds; The Passageway Funds; The Planters Funds; Portage
Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust;
Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II;
Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government Securities; and
Trust for U.S. Treasury Obligations.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding Shares.
As of November 29, 1993, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of the Fund: Putnam Trust
Company, Greenwich, Connecticut, owned approximately 37,820,900 Shares (26.18%);
Anderson & Co., Philadelphia, Pennsylvania, owned approximately 35,482,100
Shares (24.56%); Chase Manhattan Bank, New York, New York, owned approximately
7,650,894 Shares (5.29%); and State Street Bank and Trust Company, North Quincy,
Massachusetts, owned approximately 8,575,231 Shares (5.93%).
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All of the Class A (voting) shares of Federated Investors
are owned by a trust, the trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue. John F. Donahue is Chairman and Trustee,
Federated Management; Chairman and Trustee, Federated Investors; and Chairman
and Trustee of the Trust. John A. Staley, IV, is President and Trustee,
Federated Management; Vice President and Trustee, Federated Investors; Executive
Vice President, Federated Securities Corp.; and Vice President of the Trust. J.
Christopher Donahue is Trustee, Federated Management; President and Trustee,
Federated Investors; President and Director, Federated Administrative Services,
Inc.; and Vice President of the Trust. John W. McGonigle is Vice President,
Secretary, and Trustee, Federated Management; Trustee, Vice President, Secretary
and General Counsel, Federated Investors; Executive Vice President, Secretary
and Director, Federated Administrative Services, Inc.; Director and Executive
Vice President, Federated Securities Corp.; and Vice President and Secretary of
the Trust.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
October 31, 1993, 1992, and 1991, the Fund's adviser earned $666,093, $648,508,
and $796,166, respectively, of which $337,400, $388,530, and $335,005,
respectively, were voluntarily waived because of undertakings to limit the
Fund's expenses.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
- --------------------------------------------------------------------------------
These arrangements are not part of the advisory contract and have been
established only to comply with applicable state authorities. They may be
amended or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund at approximate cost.
During the fiscal years ended October 31, 1993, 1992, and 1991, the Fund
incurred costs for administrative services of $268,954, $249,818, and $229,654,
respectively. John A. Staley, IV, an officer of the Trust, and Dr. Henry J.
Gailliot, an officer of Federated Management, the adviser to the Fund, each hold
approximately 15% and 20%, respectively, of the outstanding common stock and
serve as directors of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services, Inc. For the
years ended October 31, 1993, 1992, and 1991, Federated Administrative Services,
Inc., paid approximately $165,431, $189,741, and $187,677, respectively, for
services provided by Commercial Data Services, Inc.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the investment adviser will generally use those
who are recognized dealers in specific portfolio instruments, except when a
better price and execution of the order can be obtained elsewhere. The adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve wire system are open for business.
The procedure for purchasing Shares is explained in the prospectus under
"Investing in Institutional Service Shares."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. State Street Bank and Trust
Company acts as the shareholder's agent in depositing checks and converting them
to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a Share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7, as amended (the
"Rule"), promulgated by the Securities and Exchange Commission under the
Investment Company Act of 1940. Under the Rule, the Trustees must establish
procedures reasonably designed to stabilize the net asset value per share, as
computed for purposes of distribution and redemption, at $1.00 per share, taking
into account current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party (1) on no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same-day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
Although demand features and standby commitments are techniques and are defined
as "puts" under the Rule, the Fund does not consider them to be "puts" as that
term is used in the Fund's investment limitations. Demand features and standby
commitments are features which enhance an instrument's liquidity, and the
investment limitation which proscribes puts is designed to prohibit the purchase
and sale of put and call options and is not designed to prohibit the Fund from
using techniques which enhance the liquidity of portfolio instruments.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.5% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risk and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than 397 days be purchased
by the Fund. For a discussion of the treatment of variable rate municipal
securities with demand features, refer to "Variable Rate Demand Notes" in
the prospectus.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on Shares of
the Fund, computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above, may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on Shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Institutional Service Shares." Although State Street
Bank does not charge for telephone redemptions, it reserves the right to charge
a fee for the cost of wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective Fund's portfolio. To the extent
available, such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem Shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net asset
value of the respective class during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for Institutional Service Shares for the seven-day period ended
October 31, 1993, was 1.96%.
The Fund calculates the yield for Institutional Service Shares daily, based upon
the seven days ending on the day of the calculation, called the "base period."
This yield is computed by:
- - determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net change
excluding capital changes but including the value of any additional shares
purchased with dividends earned from the original one share and (on funds that
pay dividends daily) all dividends declared on the original and any purchased
shares;
- - dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
- - multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in
Institutional Service Shares, the performance will be reduced for shareholders
paying those fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Fund's effective yield for Institutional Service Shares for the seven-day
period ended October 31, 1993, was 1.98%.
The Fund's effective yield for Institutional Service Shares is computed by
compounding the unannualized base period return by:
- - adding 1 to the base period return;
- - raising the sum to the 365/7th power; and
- - subtracting 1 from the result.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The Fund's tax-equivalent yield for Institutional Service Shares for the
seven-day period ended October 31, 1993, was 2.90%.
The tax-equivalent yield for Institutional Service Shares is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that Shares
would have had to earn to equal its actual yield, assuming a 28% federal tax
rate and the 4.5% regular personal income tax rate imposed by Connecticut for
individual taxpayers and assuming that income earned by the Fund is 100%
tax-exempt on a regular federal, state, and local basis.
TAX-EQUIVALENCY TABLE
Institutional Service Shares may also use a tax-equivalency table in advertising
and sales literature. The interest earned by the municipal securities in the
Fund's portfolio generally remains free from federal regular income tax and from
the regular personal income tax imposed by Connecticut.* As the table below
indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between "tax-free" and taxable yields.
<TABLE>
<S> <C> <C> <C> <C> <C>
TAXABLE YIELD EQUIVALENT FOR 1993
STATE OF CONNECTICUT
- -----------------------------------------------------------------------------------------------------------
TAX BRACKET:
FEDERAL: 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE: 19.50% 32.50% 35.50% 40.50% 44.10%
- -----------------------------------------------------------------------------------------------------------
JOINT RETURN: $1-36,900 $36,901-89,150 $89,151-140,000 $140,001-250,000 OVER $250,000
SINGLE RETURN: $1-22,100 $22,101-53,500 $53,501-115,000 $115,001-250,000 OVER $250,000
- -----------------------------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- -----------------------------------------------------------------------------------------------------------
1.50% 1.86% 2.22% 2.33% 2.52% 2.68%
2.00 2.48 2.96 3.10 3.36 3.58
2.50 3.11 3.70 3.88 4.20 4.47
3.00 3.73 4.44 4.65 5.04 5.37
3.50 4.35 5.19 5.43 5.88 6.26
4.00 4.97 5.93 6.20 6.72 7.16
4.50 5.59 6.67 6.98 7.56 8.05
5.00 6.21 7.41 7.75 8.40 8.94
5.50 6.83 8.15 8.53 9.24 9.84
6.00 7.45 8.89 9.30 10.08 10.73
</TABLE>
NOTE: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The above chart is for illustrative purposes only. It is not an indicator of
past or future performance of Institutional Service Shares.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local regular or alternative minimum taxes.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of Institutional Service Shares depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates on money market instruments;
- - changes in the Fund's or Institutional Service Shares' expenses; and
- - the relative amount of Fund cash flow.
From time to time, the Fund may advertise its performance compared to similar
funds or portfolios using certain indices, reporting services, and financial
publications. These may include the following:
- - LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "money market
funds" category in advertising and sales literature.
- --------------------------------------------------------------------------------
Investors may use such an index in addition to the prospectus to obtain a more
complete view of the Fund's or Share's performance before investing. Of course,
when comparing the performance of the Shares to any index, factors such as
composition of the index and prevailing market conditions should be considered
in assessing the significance of such comparisons.
When comparing funds using reporting services, or total return and yield,
investors should take into consideration any relevant differences in funds such
as permitted portfolio composition and methods used to value portfolio
securities and compute offering price.
Advertisements and other sales literature for the Shares may refer to total
return. Total return is the historic change in the value of an investment in the
Shares based on the monthly reinvestment of dividends over a specified period of
time.
9101004B (12/93)
PENNSYLVANIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH SERIES SHARES
PROSPECTUS
The Cash Series Shares of Pennsylvania Municipal Cash Trust (the "Fund") offered
by this prospectus represent interests in a non-diversified portfolio of
securities which is one of a series of investment portfolios in Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The investment objective of the Fund is to provide current income
exempt from federal regular income tax and the personal income taxes imposed by
the Commonwealth of Pennsylvania consistent with stability of principal. The
Fund invests primarily in short-term Pennsylvania municipal securities. The Fund
invests primarily in short-term Pennsylvania municipal securities, including
securities of states, territories, and possessions of the United States, which
are not issued by or on behalf of the Commonwealth of Pennsylvania or its
political subdivisions and financing authorities, which are exempt from the
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania. Cash Series Shares are sold at net asset value,
without a sales load.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THE CASH SERIES SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in Cash Series Shares. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for Cash
Series Shares and Institutional Service Shares dated December 31, 1993, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact this Fund at the
address listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 31, 1993
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CASH SERIES SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Variable Rate Demand Notes 4
Participation Interests 4
Municipal Leases 4
Ratings 4
Credit Enhancement 5
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed Delivery
Transactions 5
Temporary Investments 5
Pennsylvania Municipal Securities 6
Standby Commitments 6
Pennsylvania Investment Risks 6
Non-Diversification 7
Investment Limitations 7
Regulatory Compliance 8
FEDERATED MUNICIPAL TRUST INFORMATION 8
- ------------------------------------------------------
Management of Federated Municipal Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Cash Series Shares 9
Distribution Plan 9
Administrative Arrangements 10
Administration of the Fund 10
Administrative Services 10
Custodian 10
Transfer Agent and Dividend
Disbursing Agent 10
Legal Counsel 10
Independent Public Accountants 10
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN CASH SERIES SHARES 11
- ------------------------------------------------------
Share Purchases 11
Through a Financial Institution 11
Directly from the Distributor 11
Minimum Investment Required 11
What Shares Cost 11
Systematic Investment Program 12
Automatic Investments 12
Subaccounting Services 12
Certificates and Confirmations 12
Dividends 12
Capital Gains 13
REDEEMING CASH SERIES SHARES 13
- ------------------------------------------------------
Through a Financial Institution 13
Receiving Payment 13
By Check 13
By Wire 13
Directly from the Fund
By Mail 14
Signatures 14
Checkwriting 14
VISA Card 14
Redemption Before Purchase
Instruments Clear 15
Accounts with Low Balances 15
SHAREHOLDER INFORMATION 15
- ------------------------------------------------------
Voting Rights 15
Massachusetts Partnership Law 15
TAX INFORMATION 16
- ------------------------------------------------------
Federal Income Tax 16
Pennsylvania Tax Considerations 17
Other State and Local Taxes 17
PERFORMANCE INFORMATION 17
- ------------------------------------------------------
OTHER CLASSES OF SHARES 18
- ------------------------------------------------------
Financial Highlights--
Institutional Service Shares 19
FINANCIAL STATEMENTS 20
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 40
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH SERIES SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................ None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................................................. None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee........................................................................................... None
ANNUAL CASH SERIES SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)...................................................................... 0.46%
12b-1 Fee.............................................................................................. 0.40%
Other Expenses......................................................................................... 0.19%
Total Cash Series Shares Operating Expenses (2)................................................... 1.05%
</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
0.50%.
(2) The Total Cash Series Shares Operating Expenses in the table above are based
on expenses expected during the fiscal year ending October 31, 1994. The
Total Cash Series Shares Operating Expenses were 0.97% for the fiscal year
ended October 31, 1993 and were 1.09% absent the voluntary waiver of a
portion of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CASH SERIES SHARES OF THE FUND
WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN CASH SERIES SHARES" AND "FEDERATED
MUNICIPAL TRUST INFORMATION." Wire-transferred redemptions of less than $5,000
may be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc. ("NASD"). However, in order for a Fund
investor to exceed the NASD's maximum front-end sales charge of 6.25%, a
continuous investment in the Fund for 42 years would be required.
<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. As noted in the table above, the Fund charges no redemption
fee for Cash Series Shares............................................ $11 $33 $58 $128
</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.
The information set forth in the foregoing table and example relates only
to Cash Series Shares of the Fund. The Fund also offers another class of shares
called Institutional Service Shares. Institutional Service Shares and Cash
Series Shares are subject to certain of the same expenses, however;
Institutional Service Shares are not subject to a 12b-1 fee. See "Other Classes
of Shares."
PENNSYLVANIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--CASH SERIES SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 40.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C> <C>
1993 1992 1991*
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------
Net investment income 0.02 0.03 0.03
- ---------------------------------------------------------------------------------- --------- --------- ---------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.03) (0.03)
- ---------------------------------------------------------------------------------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------- --------- --------- ---------
TOTAL RETURN** 1.83% 2.67% 3.55%(a)
- ----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------
Expenses 0.97% 0.96% 0.78%(b)
- ----------------------------------------------------------------------------------
Net investment income 1.88% 2.64% 3.92%(b)
- ----------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.12% 0.12% 0.28%(b)
- ----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $18,561 $24,694 $19,846
- ----------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from January 25, 1991 (date of initial
public offering) to October 31, 1991.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) The voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Trustees ("Trustees") have established two classes of
shares, known as Cash Series Shares and Institutional Service Shares. This
prospectus relates only to Cash Series Shares of the Fund.
Cash Series Shares ("Shares") of the Fund are designed primarily for the retail
customers of financial institutions. A minimum initial investment of $10,000
over a 90-day period is required. The Fund may not be a suitable investment for
non-Pennsylvania taxpayers or retirement plans since it invests primarily in
Pennsylvania municipal securities.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania consistent with stability of principal. The
investment objective cannot be changed without approval of shareholders. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than Pennsylvania.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of Pennsylvania municipal securities with remaining maturities of 13 months or
less at the time of purchase by the Fund. As a matter of investment policy,
which cannot be changed without approval of shareholders, the Fund invests its
assets so that at least 80% of its annual interest income is exempt from federal
regular income tax and the personal income taxes imposed by the Commonwealth of
Pennsylvania. The average maturity of the securities in the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less. Unless indicated
otherwise, the investment policies may be changed by the Trustees without the
approval of shareholders. Shareholders will be notified before any material
changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued
by or on behalf of the Commonwealth of Pennsylvania and its political
subdivisions and financing authorities, and obligations of other states,
territories and possessions of the United States, including the District of
Columbia, and any political subdivision or financing authority of any of these,
the income from which
is, in the opinion of qualified legal counsel, exempt from both federal regular
income tax and Pennsylvania state income tax imposed upon non-corporate
taxpayers. Examples of Pennsylvania municipal securities include, but are not
limited to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
participation, trust and partnership interests in any of the foregoing
obligations.
At least 80% of the value of the Fund's total assets will be invested in
Pennsylvania municipal securities.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
municipal securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days' prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS. The Fund may purchase interests in municipal
securities from financial institutions such as commercial and investment
banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying municipal securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and may be considered to be illiquid. They may take the form
of a lease, an installment purchase contract, a conditional sales contract,
or a participation certificate on any of the above.
RATINGS. The Pennsylvania municipal securities in which the Fund invests must
either be rated in one of the two highest short-term rating categories by one or
more nationally recognized statistical rating organizations ("NRSROs") or be of
comparable quality to securities having such ratings. An NRSRO's two highest
rating categories are determined without regard for sub-categories and
gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc.
("Moody's"), or FIN-1+, FIN-1 and FIN-2 by Fitch Investors
Service, Inc. ("Fitch") are all considered rated in one of the two highest
short-term rating categories. The Fund will follow applicable regulations in
determining whether a security rated by more than one NRSRO can be treated as
being in one of the two highest short-term rating categories; currently, such
securities must be rated by two NRSROs in one of their two highest categories.
See "Regulatory Compliance."
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit-enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit enhanced securities based
upon the financial condition and ratings of the party providing the
credit-enhancement (the "credit enhancer"), rather than the issuer. The
bankruptcy, receivership or default of the credit enhancer will adversely affect
the quality and marketability of the underlying security.
The Fund may have more than 25% of its total assets invested in securities
credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Trustees, certain restricted securities are considered to be
liquid. To the extent restricted securities are deemed to be illiquid, the Fund
will limit their purchase, together with other securities considered to be
illiquid, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
Pennsylvania Municipal Securities on a when-issued or delayed delivery basis. In
when-issued and delayed delivery transactions, the Fund relies on the seller to
complete the transaction. The seller's failure to complete the transaction may
cause the Fund to miss a price or yield considered to be advantageous.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term, non-Pennsylvania municipal
tax-exempt obligations or other taxable, temporary investments. All temporary
investments will satisfy the same credit quality standards as the Fund's
acceptable investments. See "Ratings" above. Temporary investments include:
notes issued by or on behalf of municipal or corporate issuers; marketable
obligations issued or guaranteed by the U.S. government, its agencies, or
instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; and repurchase agreements (arrangements in which banks,
broker/dealers, and other recognized financial institutions sell the Fund a
temporary investment and agree to repurchase it at a mutually agreed upon time
and price).
Although the Fund is permitted to make taxable temporary investments, there is
no current intention of generating income subject to federal regular income tax
or the personal income taxes imposed by the Commonwealth of Pennsylvania.
PENNSYLVANIA MUNICIPAL SECURITIES
Pennsylvania municipal securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Pennsylvania municipal securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS
Some securities dealers are willing to sell municipal securities to the Fund
accompanied by their commitments to repurchase the municipal securities prior to
maturity, at the Fund's option, for the amortized cost of the municipal
securities at the time of repurchase. These arrangements are not used to protect
against changes in the market value of municipal securities. They permit the
Fund, however, to remain fully invested and still provide liquidity to satisfy
redemptions. The cost of municipal securities accompanied by these "standby"
commitments could be greater than the cost of municipal securities without such
commitments. Standby commitments are not marketable or otherwise assignable and
have value only to the Fund. The default or bankruptcy of a securities dealer
giving such a commitment would not affect the quality of the municipal
securities purchased. However, without a standby commitment, these securities
could be more difficult to sell. The Fund enters into standby commitments only
with those dealers whose credit the investment adviser believes to be of high
quality.
PENNSYLVANIA INVESTMENT RISKS
Yields on Pennsylvania municipal securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the Commonwealth of Pennsylvania
or its municipalities could impact the Fund's portfolio. The ability of the Fund
to achieve its investment objective also depends on the continuing ability of
the issuers of Pennsylvania municipal securities and demand features for such
securities, or the credit enhancers of either, to meet their obligations for the
payment of interest and principal when due.
Investing in Pennsylvania municipal securities which meet the Fund's quality
standards may not be possible if the Commonwealth of Pennsylvania or its
municipalities do not maintain their high quality, short-term credit ratings. In
addition, certain Pennsylvania constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could result
in adverse consequences affecting Pennsylvania municipal securities. An expanded
discussion of the current economic risks associated with the purchase of
Pennsylvania municipal securities is contained in the Combined Statement of
Additional Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified investment portfolio because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, with
regard to at least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 15% of the value of total assets to secure such
borrowings.
In order to pass-through to investors the tax-free income from the Fund for
purposes of the Pennsylvania Personal Income Tax, the Fund will invest in
securities for income earnings rather than trading for profit. The Fund will not
vary its investments, except to: (i) eliminate unsafe investments and
investments not consistent with the preservation of the capital or the tax
status of the investments of the Fund; (ii) honor redemption orders, meet
anticipated redemption requirements, and negate gains from discount purchases;
(iii) maintain a constant net asset value per unit pursuant to, and in
compliance with, an order or rule of the United States Securities and Exchange
Commission; (iv) reinvest the earnings from securities in like securities; or
(v) defray normal administrative expenses.
The above investment limitation cannot be changed without shareholder approval.
The following investment limitation, however, can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective.
The Fund will not invest more than 5% of its total assets in industrial
development bonds or other Municipal Securities when the payment of principal
and interest is the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations, including the
operation of any predecessor.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Combined Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which regulates
money market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF FEDERATED MUNICIPAL TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of
Trustees is responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .50 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for the voluntary waiver of the advisory
fee by the adviser, the adviser may voluntarily waive some or all of the
advisory fee. This does not include reimbursement to the Fund of any
expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The adviser can terminate this voluntary waiver
of expenses at any time at its sole discretion. The adviser has also
undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
DISTRIBUTION OF CASH SERIES SHARES
Federated Securities Corp. is the principal distributor for Cash Series Shares
of the Fund. It is a Pennsylvania corporation organized on November 14, 1969,
and is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund
will pay to the distributor an amount computed at an annual rate of .40 of 1% of
the average daily net asset value of the Shares to finance any activity which is
principally intended to result in the sale of Shares subject to the Plan.
The distributor may from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the Shares exceed such lower expense limitation as
the distributor may, by notice to the Trust, voluntarily declare to be
effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("brokers")
to provide sales and/or administrative services as agents for their clients or
customers who beneficially own Shares of the Fund. Administrative services may
include, but are not limited to, the following functions: providing office
space, equipment, telephone facilities, and various clerical, supervisory,
computer and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding the Shares; assisting clients in
changing dividend options, account designations, and addresses; and providing
such other services as the Fund reasonably requests for Shares.
Financial institutions will receive fees from the distributor based upon Shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no payments
to the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Board of Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATIVE ARRANGEMENTS. In addition to the fees paid by the
distributor to financial institutions under the Plan as described above, the
distributor may also pay financial institutions a fee with respect to the
average daily net asset value of Shares held by their customers for providing
administrative services. The rate of such fee will be determined by the average
net asset value of the shares held by their customers in the Cash Series classes
of the Trust and in Cash Trust Series, another registered investment company
distributed by Federated Securities Corp. This fee is in addition to amounts
paid under the Plan and, if paid, will be reimbursed by the adviser and not the
Fund.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary
of Federated Investors, provides the Fund with the administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services, Inc. provides these at approximate cost.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per Share is determined by adding the interest of the Shares in the value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in liabilities of the Fund and those attributable to Shares, and dividing the
remainder by the total number of Shares outstanding.
The Fund, of course, cannot guarantee that its net asset value will always
remain at $1.00 per Share.
INVESTING IN CASH SERIES SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open for business. Shares may be purchased through a
financial institution which has a sales agreement with the distributor or
directly from the distributor, Federated Securities Corp. The Fund reserves the
right to reject any purchase request. To purchase Shares, open an account by
calling Federated Securities Corp. Information needed to establish the account
will be taken over the telephone.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders through a financial institution are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Shares directly from the distributor. To do so: complete and sign the new
account form available from the Fund; enclose a check payable to Pennsylvania
Municipal Cash Trust--Cash Series Shares; and mail both to Federated Services
Company, c/o State Street Bank and Trust Company, P.O. Box 8604, Boston,
Massachusetts 02266-8604. The order is considered received when payment by check
is converted by State Street Bank and Trust Company into federal funds. This is
normally the next business day after State Street Bank receives the check.
To purchase Shares by Federal Reserve wire, call the Fund before 1:00 p.m.
(Eastern time) to place an order. The order is considered received immediately.
Payment by federal funds must be received before 3:00 p.m. (Eastern time) that
same day. Federal funds should be wired as follows: State Street Bank and Trust
Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to: Pennsylvania
Municipal Cash Trust--Cash Series Shares; Fund Number (this number can be found
on the account statement or by contacting the Fund); Group Number or Order
Number; Title or Name of Account; and ABA Number 011000028. Shares cannot be
purchased by wire on days on which the New York Stock Exchange is closed and on
federal holidays restricting wire transfers.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $10,000. However, an account may be
opened with a smaller amount as long as the $10,000 minimum is reached within 90
days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund. Individual accounts
established through a bank or broker may be subject to a different minimum
investment requirement.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a bank or broker may be charged an additional service fee by that
bank or broker.
The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no shares are tendered for redemption and no orders to
purchase shares are received; or (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, shareholders may add to their investment on a
regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares. A shareholder may apply for participation in this
program through his financial institution.
AUTOMATIC INVESTMENTS
Investors may wish to establish accounts with their brokers or administrators to
have automatic investments made to the Fund. The investments may be made on
predetermined dates or when the investor's account reaches a certain level.
Participating brokers or administrators are responsible for prompt transmission
of orders relating to the program; however, they may charge for this service and
other services. Investors should read this prospectus in connection with any
broker's or administrator's agreement or literature describing these services
and fees.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Financial
institutions holding Shares in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the financial institution with regard to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the day after the check is converted by, upon
instruction of the transfer agent, into federal funds. Dividends are
automatically reinvested on payment dates in additional Shares unless cash
payments are requested on an application or by contacting the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses,
if any, could result in a decrease in dividends. If, for some extraordinary
reason, the Fund realizes net long-term or short-term capital gains, it will
distribute them at least once every 12 months.
REDEEMING CASH SERIES SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemptions can be made through a financial
institution or directly from the Fund. Redemption requests must be received in
proper form.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares by calling his/her financial institution
(such as a bank or an investment dealer) to request the redemption. Shares will
be redeemed at the net asset value next determined after State Street Bank
receives the redemption request from the financial institution. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service. If, at
any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders will be promptly notified.
An authorization form permitting the Fund to accept redemption requests by
telephone must first be completed. Authorization forms and information on this
service are available from Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as By Mail, should be considered.
RECEIVING PAYMENT. Pursuant to instructions from the financial institution,
redemptions will be made by check or by wire.
BY CHECK. Normally a check for the proceeds is mailed within one business
day, but in no event more than seven days, after receipt of a proper
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
BY WIRE. Proceeds for redemption requests received before 12:00 noon
(Eastern time) will be wired the same day but will not be entitled to that
day's dividend. Redemption requests received after 12:00 noon (Eastern
time) will receive that day's dividends and will be wired the following
business day.
DIRECTLY FROM THE FUND
BY MAIL. Any shareholder may redeem Shares by sending a written request to the
Fund. The written request should include the shareholder's name, the Fund name
and class of shares, the account number, and the share or dollar amount
requested. If share certificates have been issued, they must be properly
endorsed and should be sent by registered or certified mail with the written
request. Shareholders should call the Fund for assistance in redeeming by mail.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request. Dividends are paid up to and including the day that a redemption
request is processed.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions
that are members of a signature guarantee program. The Fund and its transfer
agent reserve the right to amend these standards at any time without notice.
CHECKWRITING. At the shareholder's request, State Street Bank will establish a
checking account for redeeming Shares. For further information, contact
Federated Securities Corp.
A fee may be charged for this service. With a Fund checking account, Shares may
be redeemed simply by writing a check. The redemption will be made at the net
asset value on the date that State Street Bank presents the check to the Fund. A
check may not be written to close an account. If a shareholder wishes to redeem
Shares and have the proceeds available, a check may be written and negotiated
through the shareholder's bank. Checks should never be sent to State Street Bank
to redeem Shares. Cancelled checks are returned to the shareholder each month.
VISA CARD. At the shareholder's request, State Street Bank will establish a
VISA account. The VISA account allows a shareholder to redeem Shares by using a
VISA card. A fee determined by State Street Bank will be charged to the account
for this service. For further information, contact Federated Securities Corp.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, the proceeds from the redemption of those
Shares are not available, and the Shares may not be exchanged, until the Fund or
its agents are reasonably certain that the purchase check has cleared, which
could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $10,000 due to
shareholder redemptions.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote. As of November 29, 1993, BHC Securities Incorporated,
Philadelphia, Pennsylvania, owned 47.28% of the voting securities of the Cash
Series Shares of the Fund, and, therefore, may, for certain purposes, be deemed
to control the Cash Series Shares of the Fund and be able to affect the outcome
of certain matters presented for a vote of shareholders.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of all series in the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for such
acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument that the
Trust or its Trustees enter into or sign.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, 75% of the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income or realized net
short-term gains earned on some temporary investments are taxed as ordinary
income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
PENNSYLVANIA TAX CONSIDERATIONS
Under current Pennsylvania law, distributions made by the Fund will be exempt
from Pennsylvania personal income tax to the extent that such distributions
represent exempt-interest dividends as defined in the Internal Revenue Code, and
are attributable to obligations issued by the Commonwealth of Pennsylvania and
its political subdivisions, agencies, and instrumentalities or certain
qualifying obligations of the United States, its territories or possessions, the
interest from which is statutorily free from state taxation in the Commonwealth
of Pennsylvania ("exempt obligations"). Conversely, to the extent that
distributions made by the Fund are derived from other types of obligations, such
distributions will not be exempt from Pennsylvania personal income tax.
Shareholders subject to the Pennsylvania corporate net income tax will not be
subject to corporate net income tax on distributions of interest made by the
Fund, provided such distributions are attributable to exempt obligations, and
further provided such distributions are not included in such shareholder's
federal taxable income determined before net operating loss carryovers and
special deductions.
Shares of the Fund that are held by individual shareholders subject to the
Pennsylvania county personal property tax will be exempt from such tax to the
extent that the Fund's portfolio consists of exempt obligations on the annual
assessment date.
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from regular state income taxes in
states other than Pennsylvania or from personal property taxes. State laws
differ on this issue and shareholders are urged to consult their own tax
advisers regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield, effective yield, and
tax-equivalent yield for Cash Series Shares.
The yield of Cash Series Shares represents the annualized rate of income earned
on an investment in Cash Series Shares over a seven-day period. It is the
annualized dividends earned during the period on the investment, shown as a
percentage of the investment. The effective yield is calculated similarly to the
yield, but, when annualized, the income earned by an investment in Cash Series
Shares is assumed to be reinvested daily. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield of Cash Series Shares is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that Cash
Series Shares would have had to earn to equal their actual yield, assuming a
specific tax rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Cash Series Shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
Yield, effective yield, and tax-equivalent yield will be calculated separately
for Cash Series Shares and Institutional Service Shares. Because Cash Series
Shares are subject to 12b-1 fees, the yield, the effective yield, and the
tax-equivalent yield for Institutional Service Shares, will exceed the yield,
the effective yield, and the tax-equivalent yield for Cash Series Shares for the
same period.
From time to time, the Fund may advertise the performance of Cash Series Shares
using certain reporting services and/or compare the performance of Cash Series
Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Service Shares are sold to accounts for which financial
institutions act in an agency capacity. Institutional Service Shares are sold at
net asset value. Investments in Institutional Service Shares are subject to a
minimum initial investment of $25,000.
Institutional Service Shares are not sold pursuant to a 12b-1 Plan.
Financial institutions and brokers providing sales and administrative services
may receive different compensation depending upon which class of shares of the
Fund is sold. The distributor may pay an administrative fee to a financial
institution or broker for administrative services provided to the Institutional
Service Shares class, and may pay such a fee for administrative services
provided to the Cash Series Shares class in addition to fees paid pursuant to
the 12b-1 Plan. Any fee paid by the distributor for administrative services will
not be an expense of the class, but will be reimbursed to the distributor by the
investment adviser.
The amount of dividends payable to Institutional Service Shares will exceed that
of Cash Series Shares by the difference between class expenses and distribution
expenses borne by shares of each respective class. The stated advisory fee is
the same for both classes of shares.
PENNSYLVANIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 40.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C>
1993 1992 1991 1990*
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------
Net investment income 0.02 0.03 0.05 0.05
- ------------------------------------------------------------------ --------- --------- --------- ---------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------
Dividends to shareholders from
net investment income (0.02) (0.03) (0.05) (0.05)
- ------------------------------------------------------------------ --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------ --------- --------- --------- ---------
TOTAL RETURN** 2.24% 3.08% 4.64% 5.78%(a)
- ------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------
Expenses 0.57% 0.56% 0.55% 0.50%(b)
- ------------------------------------------------------------------
Net investment income 2.21% 3.04% 4.53% 5.56%(b)
- ------------------------------------------------------------------
Expense waiver/reimbursement(c) 0.12% 0.12% 0.11% 0.18%(b)
- ------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------
Net assets, end of period (000 omitted) $318,518 $308,200 $317,165 $275,882
- ------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from November 21, 1989 (date of initial
public investment) to October 31, 1990. For the period from the start of
business, October 10, 1989, to November 20, 1989, net investment income
aggregating $0.0067 per share ($670) was distributed to the Fund's investment
adviser. Such distribution represented the net investment income of the Fund
prior to the initial public offering of Fund shares which commenced on
November 21, 1989.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) The voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ---------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--103.4%
- -----------------------------------------------------------------------------------
PENNSYLVANIA--102.8%
-------------------------------------------------------------------
$ 1,000,000 Allegheny County, PA, IDA Weekly VRDNs (Series 1991)/(Mine Safety
Appliances Co.)/(Sanwa Bank Ltd. LOC) P-1 $ 1,000,000
-------------------------------------------------------------------
1,900,000 Allegheny County, PA, IDA Weekly VRDNs (Series 1991B)/(Shandon,
Inc.)/(PNC Bank N.A. LOC)/(Subject to AMT) P-1 1,900,000
-------------------------------------------------------------------
3,400,000 Allegheny County, PA, IDA Weekly VRDNs, Adjustable Rate Commercial
Development Revenue Bonds (Series 1992)/(Eleven Parkway Center
Associates/(Mellon Bank N.A. LOC) Aa3 3,400,000
-------------------------------------------------------------------
6,000,000 Allegheny County, PA, IDA, 2.70% CP (USX, Inc.)/(Long Term Credit
Bank of Japan Ltd. LOC), Mandatory Tender 12/8/93 A-1 6,000,000
-------------------------------------------------------------------
6,500,000 Allegheny County, PA, IDA, 2.80% CP (Duquesne Light
Company)/(Barclays Bank PLC LOC), Mandatory Tender 10/20/94 A-1+ 6,500,000
-------------------------------------------------------------------
1,500,000 Allegheny County, PA, IDA, 2.85% CP (USX, Inc.)/(Long Term Credit
Bank of Japan Ltd. LOC), Mandatory Tender 11/10/93 A-1 1,500,000
-------------------------------------------------------------------
4,000,000 Allegheny County, PA, Weekly VRDNs (Series C38)/ (MBIA Insured) VMIG1 4,000,000
-------------------------------------------------------------------
2,000,000 Athens, PA, Area School District, 2.77% TRANs, 6/30/94 NR(3) 2,000,503
-------------------------------------------------------------------
6,500,000 Authority for Improvements in Municipalities, PA, Weekly
VRDNs (Pooled Hospital & Equipment Leasing Program)/ (MBIA Insured) VMIG1 6,500,000
-------------------------------------------------------------------
$ 1,350,000 Baldwin, PA, 2.87% TRANs, 12/31/93 NR $ 1,350,192
-------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ---------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------
2,000,000 Bedford County, PA, IDA Weekly VRDNs (Series 1985)/ (Sepa, Inc.
Facility)/(Banque Paribas LOC) A-1 2,000,000
-------------------------------------------------------------------
3,600,000 Bensalem Township, PA, 2.83% TRANs, 12/31/93 NR(3) 3,600,282
-------------------------------------------------------------------
2,255,000 Berks County, PA, IDA Weekly VRDNs (Beacon Container)/(Hamilton
National Bank LOC)/(Subject to AMT) P-1 2,255,000
-------------------------------------------------------------------
1,385,000 Berks County, PA, IDA Weekly VRDNs (Quaker Maid Meats,
Inc.)/(Meridian Bank LOC)/(Subject to AMT) VMIG1 1,385,000
-------------------------------------------------------------------
2,300,000 Berks County, PA, IDA Weekly VRDNs (Series 1988)/
(Arrow International, Inc.)/(Hamilton National Bank
LOC)/(Subject to AMT) P-1 2,300,000
-------------------------------------------------------------------
3,000,000 Blackhawk, PA, School District, 2.72% TRANs, 6/30/94 NR(3) 3,000,000
-------------------------------------------------------------------
3,190,000 Bucks County, PA, IDA Weekly VRDNs (Pennsylvania
Associates)/(Meridian National Bank LOC) P-1 3,190,000
-------------------------------------------------------------------
1,000,000 Bucks County, PA, IDA Weekly VRDNs (Series 1986)/ (Winks Lane,
Inc.)/(Mellon Bank N.A. LOC) P-1 1,000,000
-------------------------------------------------------------------
5,450,000 Bucks County, PA, IDA Weekly VRDNs (Series 1991)/ (Cabot Medical
Corp.)/(Meridian Bank LOC)/(Subject to AMT) VMIG1 5,450,000
-------------------------------------------------------------------
1,000,000 Butler County, PA, IDA Weekly VRDNs (Mine Safety
Appliances Co.)/(Sanwa Bank Ltd. LOC) P-1 1,000,000
-------------------------------------------------------------------
3,000,000 Butler County, PA, IDA Weekly VRDNs (Mine Safety
Appliances Co.)/(Sanwa Bank Ltd. LOC)/(Subject
to AMT) P-1 3,000,000
-------------------------------------------------------------------
1,000,000 Butler County, PA, IDA Weekly VRDNs (Series 1992B)/
(Mine Safety Appliances)/(Sanwa Bank Ltd. LOC)/
(Subject to AMT) P-1 1,000,000
-------------------------------------------------------------------
$ 5,000,000 Cambria County, PA, IDA Weekly VRDNs (Cambria Cogeneration
Corp.)/(Fuji Bank Ltd. LOC)/(Subject to AMT) VMIG1 $ 5,000,000
-------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ---------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------
700,000 Cambria County, PA, IDA Weekly VRDNs (Cambria Cogeneration)/(Fuji
Bank Ltd. LOC)/(Subject to AMT) A-1 700,000
-------------------------------------------------------------------
2,500,000 Cambria County, PA, IDA Weekly VRDNs (Cambria Cogeneration
Corp.)/(Fuji Bank Ltd. LOC)/(Subject to AMT) VMIG1 2,500,000
-------------------------------------------------------------------
2,200,000 Carbon County, PA, IDA Weekly VRDNs (Summit Management & Utilities,
Inc.)/(PNC Bank, Northeast PA LOC)/(Subject to AMT) A-1 2,200,000
-------------------------------------------------------------------
7,300,000 Clearfield County, PA, IDA Weekly VRDNs (Penn Traffic
Co.)/(Algemene Bank Nederland LOC)/(Subject to AMT) P-1 7,300,000
-------------------------------------------------------------------
1,565,000 Clinton County, PA, 2.87% GO TRANs, 12/31/93 NR(3) 1,565,174
-------------------------------------------------------------------
2,500,000 Clinton County, PA, IDA Weekly VRDNs (Armstrong World
Industries)/(Mellon Bank N.A. LOC) P-1 2,500,000
-------------------------------------------------------------------
2,285,000 Clinton County, PA, Municipal Authority Weekly VRDNs (Series
A)/(Lock Haven Hospital)/(Mellon Bank N.A. LOC) P-1 2,285,000
-------------------------------------------------------------------
10,000,000 Commonwealth of Pennsylvania, 3.25% TANs, 6/30/94 SP-1+ 10,035,576
-------------------------------------------------------------------
1,825,000 Conrad Weiser, PA, Area School District, 2.72% TRANs, 6/30/94 NR(3) 1,825,000
-------------------------------------------------------------------
4,000,000 Delaware County, PA, IDA, 2.70% CP (Standard Oil Co.)/(B.P. North
America Guaranty), Mandatory Tender 1/13/94 A-1+ 4,000,000
-------------------------------------------------------------------
2,000,000 Delaware County, PA, PCA, 2.80% CP (Philadelphia
Electric Co.)/(FGIC Insured), Mandatory Tender 3/23/94 A-1+ 2,000,000
-------------------------------------------------------------------
$ 1,370,000 Eastern York, PA, School District, 2.78% TRANs, 6/30/94 NR(3) $ 1,370,794
-------------------------------------------------------------------
800,000 Erie County, PA, IDA Weekly VRDNs (P.H.B., Inc.)/ (Marine Bank
LOC)/(Subject to AMT) P-1 800,000
-------------------------------------------------------------------
625,000 Erie County, PA, IDA Weekly VRDNs (Series 1985)/
(R.P-C Value, Inc.)/(PNC Bank N.A. LOC) P-1 625,000
-------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ---------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------
800,000 Erie County, PA, IDA Weekly VRDNs (Series B)/(P.H.B., Inc.)/(Marine
Bank LOC)/(Subject to AMT) P-1 800,000
-------------------------------------------------------------------
1,780,000 Erie County, PA, IDA Weekly VRDNs Multi-Mode Revenue Reference
Bonds (Corry Manor, Inc.)/(Marine
Bank LOC) A-1 1,780,000
-------------------------------------------------------------------
750,000 Forest County, PA, IDA Weekly VRDNs (Industrial Timber and Land
Co.)/(National City Bank LOC) P-1 750,000
-------------------------------------------------------------------
1,530,000 Forest County, PA, IDA Weekly VRDNs (Marienville Healthcare
Facility)/(PNC Bank N.A. LOC) P-1 1,530,000
-------------------------------------------------------------------
2,100,000 Franklin County, PA, IDR Weekly VRDNs (Guarriello Limited
Partnership)/(PNC Bank N.A. LOC)/(Subject to AMT) P-1 2,100,000
-------------------------------------------------------------------
2,100,000 Grove City, PA, School District, 2.79% TRANs, 6/30/94 NR(3) 2,101,218
-------------------------------------------------------------------
3,000,000 Lackawanna County, PA, IDA Weekly VRDNs (Series 1992)/(HEM
Project)/(Corestate Bank N.A. LOC)/
(Subject to AMT) P-1 3,000,000
-------------------------------------------------------------------
4,900,000 Lehigh County, PA, General Purpose Authority Revenue Bonds Weekly
VRDNs (Series 1990)/(Phoebe Terrace, Inc.)/(Meridian Bank LOC) P-1 4,900,000
-------------------------------------------------------------------
3,400,000 Lehigh County, PA, IDA Weekly VRDNs (Cedar Crest College)/(PNC
Bank, Northeast PA LOC) A-1 3,400,000
-------------------------------------------------------------------
$ 4,800,000 Lehigh County, PA, IDA Weekly VRDNs (Series 1989A)/ (Hershey Pizza
Co., Inc.)/(PNC Bank, Northeast PA LOC)/(Subject to AMT) A-1 $ 4,800,000
-------------------------------------------------------------------
1,380,000 McKean County, PA, IDA Weekly VRDNs Multi-Mode Revenue Reference
Bonds (Bradford Manor, Inc.)/(Marine Bank, LOC) A-1 1,380,000
-------------------------------------------------------------------
3,300,000 Monroe County, PA, IDA PCR Weekly VRDNs (Cooper Industries)/(Sanwa
Bank Ltd. LOC) A-1+ 3,300,000
-------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ---------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------
1,500,000 Montgomery County, PA, IDA Weekly VRDNs (Series 1992)/(RJI Limited
Partnership)/(Meridian Bank LOC)/ (Subject to AMT) VMIG1 1,500,000
-------------------------------------------------------------------
2,800,000 Montgomery County, PA, IDA Weekly VRDNs (Thomas & Betts
Corp.)/(Wachovia Bank & Trust Co. N.A. LOC)/ (Subject to AMT) P-1 2,800,000
-------------------------------------------------------------------
2,725,000 Moon Township, PA, IDA Weekly VRDNs (Airport Hotel
Associates)/(Algemene Bank Nederland LOC) A-1+ 2,725,000
-------------------------------------------------------------------
5,000,000 North Lebanon Township, PA, Municipal Authority Mortgage Weekly
VRDNs (Grace Community, Inc.)/
(Meridian Bank LOC) VMIG1 5,000,000
-------------------------------------------------------------------
5,000,000 Northampton County, PA, IDA, 2.65% CP (Citizens Utilities
Company)/(Subject to AMT), Mandatory
Tender 12/10/93 A-1+ 5,000,000
-------------------------------------------------------------------
4,000,000 Northampton County, PA, IDA, 2.65% CP (Citizins
Utilities Company)/(Subject to AMT), Mandatory
Tender 12/14/93 A-1+ 4,000,000
-------------------------------------------------------------------
4,000,000 Northampton County, PA, IDA, 2.70% CP (Citizens Utilities
Company)/(Subject to AMT), Mandatory
Tender 1/20/94 A-1+ 4,000,000
-------------------------------------------------------------------
$ 375,000 Pennsylvania EDA Revenue Bonds Weekly VRDNs (O.D.I., Inc.)/(PNC
Bank N.A. LOC)/(Subject to AMT) Aa3 $ 375,000
-------------------------------------------------------------------
825,000 Pennsylvania EDA Revenue Bonds Weekly VRDNs (Ram Forest
Products)/(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 825,000
-------------------------------------------------------------------
1,750,000 Pennsylvania EDA Weekly VRDNs (Series G4)/(Metamura Products,
Inc.)/(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 1,750,000
-------------------------------------------------------------------
825,000 Pennsylvania EDA Weekly VRDNs (PNC Bank N.A. LOC) P-1 825,000
-------------------------------------------------------------------
325,000 Pennsylvania EDA Weekly VRDNs (Cavert Wire Co.)/ (PNC Bank N.A.
LOC)/(Subject to AMT) Aa3 325,000
-------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ---------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------
3,900,000 Pennsylvania EDA Weekly VRDNs (Industrial Scientific Corp.)/(Mellon
Bank N.A. LOC)/(Subject to AMT) P-1 3,900,000
-------------------------------------------------------------------
1,800,000 Pennsylvania EDA Weekly VRDNs (Joseph J. Brunner, Inc.)/(PNC Bank
N.A. LOC)/(Subject to AMT) A-1 1,800,000
-------------------------------------------------------------------
875,000 Pennsylvania EDA Weekly VRDNs (Pioneer Fluid)/
(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 875,000
-------------------------------------------------------------------
950,000 Pennsylvania EDA Weekly VRDNs (Reale Associates)/ (PNC Bank N.A.
LOC)/(Subject to AMT) Aa3 950,000
-------------------------------------------------------------------
1,600,000 Pennsylvania EDA Weekly VRDNs (Series 1986)/(B.W. Ebensburg)/(Swiss
Bank LOC)/(Subject to AMT) VMIG1 1,600,000
-------------------------------------------------------------------
575,000 Pennsylvania EDA Weekly VRDNs (Series B8)/(Payne Printing Co.)/(PNC
Bank N.A. LOC)/(Subject to AMT) Aa3 575,000
-------------------------------------------------------------------
4,600,000 Pennsylvania EDA Weekly VRDNs (Walnut & Craig Street
Associates)/(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 4,600,000
-------------------------------------------------------------------
3,000,000 Pennsylvania Floating Rate Trust Certificate, 2.65% Monthly TOBs
(Series 1993H)/(Commonwealth of Pennsylvania)/(AMBAC Insured),
11/1/93 NR(2) 3,000,000
-------------------------------------------------------------------
$ 7,300,000 Pennsylvania HFA, 2.90% TOBs (First National Bank, Chicago BPA),
Optional Tender 4/1/94 NR(2) $ 7,300,000
-------------------------------------------------------------------
1,000,000 Pennsylvania HFA, Section 8 Assisted Residential Development
Refunding Bonds Weekly VRDNs (Series 1992A)/ (Capital Guaranty
Insured, Citibank N.A. BPA) NR(1) 1,000,000
-------------------------------------------------------------------
9,700,000 Pennsylvania Higher Education Assistance Agency
Weekly VRDNs (Fuji Bank Ltd. LOC)/(Subject to AMT) VMIG1 9,700,000
-------------------------------------------------------------------
5,600,000 Pennsylvania Higher Education Facilities Authority Weekly VRDNs
(Osteopathic Medical Center of
Philadelphia)/(Bank of New York LOC) VMIG1 5,600,000
-------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ---------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------
5,000,000 Pennsylvania Higher Education Facilities Authority, 2.90% Annual
TOBs (Carnegie Mellon University), Mandatory Tender 11/1/93 A-1 5,000,000
-------------------------------------------------------------------
4,100,000 Pennsylvania State Higher Education Assistance Agency Weekly VRDNs
(Student Loan Marketing Association LOC) A-1 4,100,000
-------------------------------------------------------------------
3,000,000 Pennsylvania State Higher Education Facilities Authority, 2.55%
Annual TOBs (Carnegie-Mellon University), Optional Tender 5/1/94 A-1 3,000,000
-------------------------------------------------------------------
9,625,000 Pennsylvania State Higher Education Facilities Authority, 2.85%
TOBs (Carnegie-Mellon University), Optional Tender 11/1/94 A-1 9,625,000
-------------------------------------------------------------------
5,800,000 Pennsylvania State University, 3.00% BANs (Series 93), 5/26/94 MIG1 5,811,948
-------------------------------------------------------------------
2,900,000 Philadelphia Authority for Industrial Development
Weekly VRDNs (Series 1991A)/(Levin Corp.)/(PNC Bank N.A. LOC) P-1 2,900,000
-------------------------------------------------------------------
$ 19,300,000 Philadelphia Redevelopment Authority Multi-Family Revenue Bonds
Weekly VRDNs (Series 1985)/(Franklin Town Towers)/(Marine Midland
Bank N.A. and
Hong-Kong Shanghai Banking Corp. LOCs) A-1 $ 19,300,000
-------------------------------------------------------------------
3,000,000 Philadelphia, PA, 2.70% CP GO Bonds (Series 1990)/(Fuji Bank Ltd.
LOC), Mandatory Tender 1/13/94 A-1 3,000,000
-------------------------------------------------------------------
5,930,000 Philadelphia, PA, HEFA, 2.70% Annual TOBs
(Pennsylvania Hospital)/(PNC Bank N.A. LOC),
Optional Tender 7/1/94 A-1 5,930,000
-------------------------------------------------------------------
3,500,000 Philadelphia, PA, IDA, 3.15% Annual TOBs (Series A)/ (Suite
Hotel)/(Bank of Tokyo Ltd. LOC), Optional Tender 6/1/94 A-1+ 3,500,000
-------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ---------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------
7,600,000 Philadelphia, PA, IDR Weekly VRDNs (Series 93)/
(Sackett Development)/(Mellon Bank N.A. LOC) P-1 7,600,000
-------------------------------------------------------------------
8,000,000 Philadelphia, PA, School District Weekly VRDNs
(Series PT-3)/(MBIA Insured) VMIG1 8,000,000
-------------------------------------------------------------------
1,300,000 Phoenixville, PA, 2.80% GO TRANs, 12/31/93 NR(3) 1,300,000
-------------------------------------------------------------------
4,450,000 Pheonixville, PA, Area School District, 2.82% TRANs,
6/30/94 NR(3) 4,452,836
-------------------------------------------------------------------
5,000,000 Pittsburgh, PA, Urban Redevelopment Authority, 2.85% Mortgage
Revenue Bonds (Series B)/(Barclays Bank PLC Investment
Agreement)/(Subject to AMT), Mandatory Tender 6/1/94 A-1+ 5,000,000
-------------------------------------------------------------------
1,800,000 Port Authority of Allegheny County, PA, 2.90% Grant Anticipation
Notes (Series 1993A)/(PNC Bank N.A. LOC), 8/1/94 P-1 1,800,000
-------------------------------------------------------------------
1,000,000 Quakertown, PA, HDA Weekly VRDNs (The HPS Group Pooled
Finance)/(First National Bank, Chicago LOC) VMIG1 1,000,000
-------------------------------------------------------------------
$ 2,400,000 Riverside, PA, Beaver County School District, 2.77% TRANs, 6/30/94 NR(3) $ 2,400,762
-------------------------------------------------------------------
2,000,000 Shaler Township, PA, 2.86% GO TRANs, 12/31/93 NR(3) 2,000,189
-------------------------------------------------------------------
1,550,000 Shippensburg, PA, Area School District, 2.73% TRANs,
6/30/94 NR(3) 1,550,000
-------------------------------------------------------------------
10,000,000 Upper Allegheny, PA, Joint Sanitary Authority, 2.85% Annual TOBs
(Series 1986C)/(AIG Investment
Agreement), Mandatory Tender 7/15/94 A-1+ 10,000,000
-------------------------------------------------------------------
2,180,000 Upper Southampton Township, PA, 2.85% GO TRANs, 12/31/93 NR(3) 2,180,347
-------------------------------------------------------------------
4,000,000 Venango, PA, IDA, 2.60% CP (Series 1993)/(Scrubgrass Power
Co.)/(National Westminster Bank PLC LOC)/
(Subject to AMT), Mandatory Tender 11/29/93 A-1+ 4,000,000
-------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ---------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------
2,000,000 Venango, PA, IDA, 2.60% CP (Series A)/(Scrubgrass Power
Co.)/(National Westminster Bank PLC LOC)/
(Subject to AMT), Mandatory Tender 11/24/93 A-1+ 2,000,000
-------------------------------------------------------------------
2,000,000 Washington County, PA, HDA Weekly VRDNs (Keystone Diversified
Management Corp.)/(Mellon Bank N.A. LOC) A-1 2,000,000
-------------------------------------------------------------------
1,625,000 Washington County, PA, IDA Weekly VRDNs (Series 1988)/(Cameron
Coca-Cola, Inc.)/(Mellon Bank N.A. LOC) P-1 1,625,000
-------------------------------------------------------------------
1,215,000 Washington County, PA, IDA Weekly VRDNs (Series 1990)/(Mac
Plastics, Inc.)/(National City Bank LOC)/ (Subject to AMT) Aa 1,215,000
-------------------------------------------------------------------
1,300,000 Washington County, PA, Municipal Authority Facilities Revenue Bonds
Weekly VRDNs (Series 1985)/(Pooled Capital Program)/(Sumitomo Bank
Ltd. LOC) P-1 1,300,000
-------------------------------------------------------------------
1,100,000 West Chester, PA, 3.11% GO TRANs, 12/31/93 NR(3) 1,100,457
-------------------------------------------------------------------
$ 12,000,000 Westmoreland County, PA, 2.85% TRANs (PNC Bank N.A. LOC), 12/31/93 P-1 $ 12,000,000
-------------------------------------------------------------------
1,000,000 Whitehall, PA, 2.97% GO TRANs, 12/31/93 NR(3) 1,000,196
-------------------------------------------------------------------
3,000,000 York County, PA, IDA Weekly VRDNs (West Manchester Inn
Associates)/(Mellon Bank N.A. LOC) P-1 3,000,000
------------------------------------------------------------------- ---------------
TOTAL $ 346,595,474
------------------------------------------------------------------- ---------------
PUERTO RICO--0.6%
-------------------------------------------------------------------
2,100,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit
Suisse and Sumitomo Bank Ltd. LOCs) A-1+ 2,100,000
------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS (AT AMORTIZED COST) $ 348,695,474\
------------------------------------------------------------------- ---------------
</TABLE>
\ Also represents cost for federal tax purposes.
* See Notes to Portfolio of Investments.
Note: The category of investments is shown as a percentage of net assets
($337,079,400) at October 31, 1993.
The following abbreviations are used in this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
AMT--Alternative Minimum Tax
BANs--Bond Anticipation Notes
BPA--Bond Purchase Agreement
CP--Commercial Paper
EDA--Economic Development Authority
FGIC--Financial Guaranty Insurance Company
GO--General Obligation
HDA--Hospital Development Authority
HEFA--Health and Education Facilities Authority
HFA--Housing Finance Authority/Agency
IDA--Industrial Development Authority
IDR--Industrial Development Revenue
LOC--Letter of Credit
LOCs--Letters of Credit
MBIA--Municipal Bond Investors Assurance
PCA--Pollution Control Authority
PCR--Pollution Control Revenue
TANs--Tax Anticipation Notes
TOBs--Tender Option Bonds
TRANs--Tax and Revenue Anticipation Notes
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATIONS RATINGS
S&P
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S
Moody's short-term ratings are designated Moody's Investment Grade (MIG or VMIG
(see below)). The purpose of the MIG or VMIG ratings is to provide investors
with a simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
FITCH
Fitch's short-term ratings place greater emphasis on the existence of liquidity
necessary to meet the issuer's obligations in a timely manner.
F-1 Strongest degree of assurance for timely payment. Those issues determined to
provide exceptionally strong credit quality are given a plus (+)
designation.
F-2 Notes reflecting a degree of assurance for timely payment only slightly less
in degree than the highest category.
VARIABLE RATE DEMAND NOTES (VRDNS)
AND
TENDER OPTION BONDS (TOBS)
RATINGS
S&P
Standard & Poor's assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-1+, AA/A-1K, and A/A-1. (The
definitions for the short-term ratings are provided below.)
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
MOODY'S
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity.
In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the
first representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the second representing an evaluation of
the degree of risk associated with the demand feature. The VMIG rating can be
assigned a 1 or 2 designation using the same definitions described above for the
MIG rating.
FITCH
Fitch usually assigns two ratings to long-term debt issues that include
provisions for a variable rate demand feature. The long-term rating addresses
the ability of the obligor to pay debt service and the short-term rating
addresses the timely payment of the demand feature. Exemples of rating
designations are as follows: AAA/F-1+, AA/F-1K, and A/F-1. (The definitions for
the long-term and short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
S&P
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."
MOODY'S
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
The following is an explanation of the Fitch ratings. These ratings are not
referenced in the Portfolio of Investments.
FITCH
F-1 Issues assigned this rating relfect a strong degree of assurance for timely
payment. Those issuers determined to possess the strongest degree of
assurance for timely payment are denoted with a plus (+) sign designation.
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
F-2 Issuers carrying this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the "F-1+" and
"F-1" categories
LONG-TERM DEBT RATINGS
(INVESTMENT GRADE)
S&P
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB Debt rated "BBB" is regarding as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
principal and interest than debt rated in higher ratings categories.
MOODY'S
Aaa Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large margin and principal
is secure. While the various protective elements are likely to change, such
changes which can be foreseen are most unlikely to impair the fundamentally
strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in AAA securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
FITCH
AAA Bonds that are rated AAA are of the highest credit quality. The obligor has
an exceptionally strong ability to pay debt service.
AA Bonds that are rated AA are of very high quality. The obligor has a very
strong ability to pay debt service. Debt rated in this category may also
have a (+) or (-) sign with a rating to indicate the relative position
within the rating category.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to
be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and
therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
NR indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P, Moody's, or Fitch with respect to short-term
indebtedness. However, management considers them to be of comparable quality to
securities rated in one of the two highest short-term ratings categories by a
nationally recognized statistical ratings organization.
NR(1)The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by Fitch.
NR(2)The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch.
NR(3)The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "A" by Standard & Poor's, Moody's, or Fitch.
NR(4)The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by Fitch.
PENNSYLVANIA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $ 348,695,474
- ------------------------------------------------------------------------------------------------
Cash 832,981
- ------------------------------------------------------------------------------------------------
Interest receivable 1,900,397
- ------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 1,524
- ------------------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 16,988
- ------------------------------------------------------------------------------------------------ ---------------
Total assets 351,447,364
- ------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------------
Payable for investments purchased $ 13,725,000
- --------------------------------------------------------------------------------
Dividends payable 497,169
- --------------------------------------------------------------------------------
Payable for Fund shares redeemed 10,000
- --------------------------------------------------------------------------------
Accrued expenses and other liabilities 135,795
- -------------------------------------------------------------------------------- --------------
Total liabilities 14,367,964
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS for 337,079,400 shares of beneficial interest outstanding $ 337,079,400
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- ------------------------------------------------------------------------------------------------
Institutional Service Shares ($318,518,627 / 318,518,627 shares
of beneficial interest outstanding) $1.00
- ------------------------------------------------------------------------------------------------ ---------------
Cash Series Shares ($18,560,773 / 18,560,773 shares of
beneficial interest outstanding) $1.00
- ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 9,700,827
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 1,740,351
- ------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 338,801
- ------------------------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 195,678
- ------------------------------------------------------------------------------------
Trustees' fees 8,055
- ------------------------------------------------------------------------------------
Auditing fees 20,958
- ------------------------------------------------------------------------------------
Legal fees 14,712
- ------------------------------------------------------------------------------------
Printing and postage 24,161
- ------------------------------------------------------------------------------------
Fund share registration costs 40,411
- ------------------------------------------------------------------------------------
Distribution services fees (Note 5) 91,235
- ------------------------------------------------------------------------------------
Insurance premiums 14,422
- ------------------------------------------------------------------------------------
Miscellaneous 2,742
- ------------------------------------------------------------------------------------ -------------
Total expenses 2,491,526
- ------------------------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) 415,874
- ------------------------------------------------------------------------------------ -------------
Net expenses 2,075,652
- --------------------------------------------------------------------------------------------------- -------------
Net investment income $ 7,625,175
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C>
1993 1992
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------
Net investment income $ 7,625,175 $ 10,365,086
- ----------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -----------------------------------------------------------------------------
Institutional Service Shares (7,195,929) (9,810,541)
- -----------------------------------------------------------------------------
Cash Series Shares (429,246) (554,545)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from distributions to shareholders (7,625,175) (10,365,086)
- -----------------------------------------------------------------------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------
Proceeds from sale of shares 932,887,176 846,311,595
- -----------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 1,613,211 2,064,869
- -----------------------------------------------------------------------------
Cost of shares redeemed (930,314,734) (852,494,450)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from Fund share transactions 4,185,653 (4,117,986)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets 4,185,653 (4,117,986)
- -----------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------
Beginning of period 332,893,747 337,011,733
- ----------------------------------------------------------------------------- ---------------- ----------------
End of period $ 337,079,400 $ 332,893,747
- ----------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company
with several portfolios. The financial statements included herein are only those
of Pennsylvania Municipal Cash Trust (the "Fund"). The financial statements of
the other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
Effective December 31, 1990, the Fund provides two classes of shares
("Institutional Service Shares" and "Cash Series Shares"). Cash Series Shares
are identical in all respects to Institutional Service Shares except that Cash
Series Shares are sold pursuant to a distribution plan ("Plan") adopted in
accordance with Investment Company Act Rule 12b-1.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined
that the best method currently available for valuing portfolio securities
is amortized cost. The Fund's use of the amortized cost method to value its
portfolio securities is conditioned on its compliance with Rule 2a-7 under
the Investment Company Act of 1940.
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state, than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such
factors, at October 31, 1993, 67.2% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies of various
financial institutions. The aggregate percentages by financial institution
ranged from 0.3% to 14.0% of total investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest earned net of premium, and original issue discount as
required by the Internal Revenue Code.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code (the "Code") applicable to investment companies and
to distribute to shareholders each year all of its net income. Accordingly,
no provision for federal tax is necessary. Dividends paid by the Fund
representing net interest received on tax-exempt municipal securities are
not includable by shareholders as gross income for federal income tax
purposes because the Fund intends to meet certain requirements of the Code
applicable to regulated investment companies which will enable the Fund to
pay exempt-interest dividends. The portion of such interest, if any, earned
on private
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
activity bonds issued after August 7, 1986 may be considered a tax
preference item to shareholders for the purpose of computing the
alternative minimum tax.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Fund
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objective and policies
and not for the purpose of investment leverage. The Fund will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Fund will maintain security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method through October 1994.
F. EXPENSES--Expenses of the Fund (other than distribution services fees) and
waivers and reimbursements, if any, are allocated to each class of shares
based on its relative daily average net assets for the period. Expenses
incurred by the Trust which do not specifically relate to an individual
Fund are allocated among all Funds based on a Fund's relative net asset
value size or as deemed appropriate by the administrator.
G. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) DIVIDENDS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash, or in additional
shares at the net asset value on the payable date.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1993 capital paid-in aggregated $337,079,400.
Transactions in Fund shares were as follows:
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SERVICE SHARES 1993 1992
<S> <C> <C>
Shares outstanding, beginning of period 308,199,611 317,165,299
- --------------------------------------------------------------------------------------
Shares sold 889,559,906 794,876,747
- --------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 1,201,127 1,514,034
- --------------------------------------------------------------------------------------
Shares redeemed (880,442,017) (805,356,469)
- -------------------------------------------------------------------------------------- ------------ ------------
Shares outstanding, end of period 318,518,627 308,199,611
- -------------------------------------------------------------------------------------- ------------ ------------
<CAPTION>
CASH SERIES SHARES
<S> <C> <C>
Shares outstanding, beginning of period 24,694,136 19,846,434
- --------------------------------------------------------------------------------------
Shares sold 43,327,270 51,434,848
- --------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 412,084 550,835
- --------------------------------------------------------------------------------------
Shares redeemed (49,872,717) (47,137,981)
- -------------------------------------------------------------------------------------- ------------ ------------
Shares outstanding, end of period 18,560,773 24,694,136
- -------------------------------------------------------------------------------------- ------------ ------------
</TABLE>
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Management, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to .50 of 1% of the Fund's
average daily net assets. The Adviser has voluntarily agreed to waive a portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time in its sole discretion. During the fiscal year ended October 31, 1993, the
Adviser earned $1,740,351 as its advisory fee, of which $415,874 was voluntarily
waived.
During the year ended October 31, 1993, pursuant to Rule 17a-7 of the Investment
Company Act of 1940, the Fund engaged in purchase and sale transactions with
other funds advised by the Adviser amounting to $419,475,000 and $412,510,000,
respectively. These purchases and sales were conducted on an arms-length basis
insofar as they were transacted for cash consideration only, at independent
current market prices and without brokerage commission, fee or other
remuneration.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Trust will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the assets of the
Fund, for fees it paid which relate to the distribution and administration of
the Fund's Cash Series Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.40 of 1% of the average daily net assets of the
Cash Series Shares, annually, to pay commissions, maintenance fees and to
compensate the distributor. During the year ended October 31, 1993, FSC earned
$91,235 in distribution services fees, none of which was voluntarily waived.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Certain Officers and Trustees of the
Trust are Officers and Directors of the above corporations.
(6) CURRENT CREDIT RATINGS
Current credit ratings and related notes are unaudited.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST (Pennsylvania Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of
Pennsylvania Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio investments as of October 31, 1993, the related statement of
operations for the year then ended, the statement of changes in net assets, and
the financial highlights (see pages 2 and 19 of the prospectus) for the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1993, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pennsylvania Municipal Cash Trust, an investment portfolio of Federated
Municipal Trust, as of October 31, 1993, the results of its operations for the
year then ended, and the changes in its net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR
ANDERSEN & CO.
Pittsburgh, Pennsylvania
December 13, 1993
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Pennsylvania Municipal Cash Trust
Cash Series Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts 02266-8604
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Towers
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL
CASH TRUST
CASH SERIES SHARES
PROSPECTUS
A Non-Diversified Portfolio of
Federated Municipal Trust, an Open-End
Management Investment Company
December 31, 1993
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
9101005A-CSS (12/93)
PENNSYLVANIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Pennsylvania Municipal Cash Trust (the
"Fund") offered by this prospectus represent interests in a non-diversified
portfolio of securities which is one of a series of investment portfolios in
Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund). The investment objective of the Fund is to provide
current income exempt from federal regular income tax and the personal income
taxes imposed by the Commonwealth of Pennsylvania consistent with stability of
principal. The Fund invests primarily in short-term Pennsylvania municipal
securities. The Fund invests primarily in short-term Pennsylvania municipal
securities, including securities of states, territories, and possessions of the
United States, which are not issued by or on behalf of the Commonwealth of
Pennsylvania or its political subdivisions and financing authorities, which are
exempt from the federal regular income tax and the personal income taxes imposed
by the Commonwealth of Pennsylvania. Institutional Service Shares are sold at
net asset value, without a sales load.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THE INSTITUTIONAL SERVICE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in Institutional Service Shares. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information for
Institutional Service Shares and Cash Series Shares dated December 31, 1993,
with the Securities and Exchange Commission. The information contained in the
Combined Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact this Fund at the
address listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 31, 1993
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL
SERVICE SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Variable Rate Demand Notes 4
Participation Interests 4
Municipal Leases 4
Ratings 4
Credit Enhancement 5
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed Delivery
Transactions 5
Temporary Investments 5
Pennsylvania Municipal Securities 6
Standby Commitments 6
Pennsylvania Investment Risks 6
Non-Diversification 7
Investment Limitations 7
Regulatory Compliance 8
FEDERATED MUNICIPAL TRUST INFORMATION 8
- ------------------------------------------------------
Management of Federated Municipal Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Institutional Service Shares 9
Administrative Arrangements 9
Administration of the Fund 9
Administrative Services 9
Custodian 9
Transfer Agent and Dividend
Disbursing Agent 10
Legal Counsel 10
Independent Public Accountants 10
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SERVICE SHARES 10
- ------------------------------------------------------
Share Purchases 10
By Wire 10
By Mail 10
Minimum Investment Required 10
What Shares Cost 11
Subaccounting Services 11
Certificates and Confirmations 11
Dividends 11
Capital Gains 11
REDEEMING INSTITUTIONAL SERVICE SHARES 12
- ------------------------------------------------------
Telephone Redemption 12
Written Requests 12
Signatures 12
Receiving Payment 13
Checkwriting 13
Redemption Before Purchase
Instruments Clear 13
Accounts with Low Balances 13
SHAREHOLDER INFORMATION 13
- ------------------------------------------------------
Voting Rights 13
Massachusetts Partnership Law 14
TAX INFORMATION 14
- ------------------------------------------------------
Federal Income Tax 14
Pennsylvania Tax Considerations 15
Other State and Local Taxes 15
PERFORMANCE INFORMATION 15
- ------------------------------------------------------
OTHER CLASSES OF SHARES 16
- ------------------------------------------------------
Financial Highlights--Cash Series Shares 17
FINANCIAL STATEMENTS 18
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 40
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................ None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................................................. None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee........................................................................................... None
ANNUAL INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)...................................................................... 0.46%
12b-1 Fee.............................................................................................. None
Other Expenses......................................................................................... 0.19%
Total Institutional Service Shares Operating Expenses (2)......................................... 0.65%
</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
0.50%.
(2)
The Total Institutional Service Shares Operating Expenses in the table above are
based on expenses expected during the fiscal year ending October 31, 1994. The
Total Institutional Service Shares Operating Expenses were 0.57% for the
fiscal year ended October 31, 1993 and were 0.69% absent the voluntary
waiver of a portion of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF
THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE
DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL
SERVICE SHARES" AND "FEDERATED MUNICIPAL TRUST INFORMATION." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<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. As noted in the table above, the Fund charges no redemption
fee for Institutional Service Shares.................................. $7 $21 $36 $81
</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.
The information set forth in the foregoing table and example relates only
to Institutional Service Shares of the Fund. The Fund also offers another class
of shares called Cash Series Shares. Institutional Service Shares and Cash
Series Shares are subject to certain of the same expenses; however, Cash Series
Shares are subject to a 12b-1 fee of 0.40%. See "Other Classes of Shares."
PENNSYLVANIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 40.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C>
1993 1992 1991 1990*
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------
Net investment income 0.02 0.03 0.05 0.05
- ------------------------------------------------------------------ --------- --------- --------- ---------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------
Dividends to shareholders from
net investment income (0.02) (0.03) (0.05) (0.05)
- ------------------------------------------------------------------ --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------ --------- --------- --------- ---------
TOTAL RETURN** 2.24% 3.08% 4.64% 5.78%(a)
- ------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------
Expenses 0.57% 0.56% 0.55% 0.50%(b)
- ------------------------------------------------------------------
Net investment income 2.21% 3.04% 4.53% 5.56%(b)
- ------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.12% 0.12% 0.11% 0.18%(b)
- ------------------------------------------------------------------
SUPPLEMENT DATA
- ------------------------------------------------------------------
Net assets, end of period (000 omitted) $318,518 $308,200 $317,165 $275,882
- ------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from November 21, 1989 (date of initial
public investment) to October 31, 1990. For the period from the start of
business, October 10, 1989, to November 20, 1989, net investment income
aggregating $0.0067 per share ($670) was distributed to the Fund's investment
adviser. Such distribution represented the net investment income of the Fund
prior to the initial public offering of Fund shares which commenced on November
21, 1989.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) The voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Trustees ("Trustees") have established two classes of
shares, known as Institutional Service Shares and Cash Series Shares. This
prospectus relates only to Institutional Service Shares of the Fund.
Institutional Service Shares ("Shares") of the Fund are designed for the
investment of moneys held by financial institutions in an agency capacity. A
minimum initial investment of $25,000 over a 90-day period is required. The Fund
may not be a suitable investment for non-Pennsylvania taxpayers or retirement
plans since it invests primarily in Pennsylvania municipal securities.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania consistent with stability of principal. The
investment objective cannot be changed without approval of shareholders. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than Pennsylvania.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of Pennsylvania municipal securities with remaining maturities of 13 months or
less at the time of purchase by the Fund. As a matter of investment policy,
which cannot be changed without approval of shareholders, the Fund invests its
assets so that at least 80% of its annual interest income is exempt from federal
regular income tax and the personal income taxes imposed by the Commonwealth of
Pennsylvania. The average maturity of the securities in the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less. Unless indicated
otherwise, the investment policies may be changed by the Trustees without the
approval of shareholders. Shareholders will be notified before any material
changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued
by or on behalf of the Commonwealth of Pennsylvania and its political
subdivisions and financing authorities, and obligations of other states,
territories and possessions of the United States, including the District of
Columbia, and any political subdivision or financing authority of any of these,
the income from which is, in the opinion of qualified legal counsel, exempt from
both federal regular income tax and Pennsylvania state income tax imposed upon
non-corporate taxpayers. Examples of Pennsylvania municipal securities include,
but are not limited to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
municipal securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rated demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days' prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS. The Fund may purchase interests in municipal
securities from financial institutions such as commercial and investment
banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying municipal securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and may be considered to be illiquid. They may take the form
of a lease, an installment purchase contract, a conditional sales contract,
or a participation certificate on any of the above.
RATINGS. The Pennsylvania municipal securities in which the Fund invests must
either be rated in one of the two highest short-term rating categories by one or
more nationally recognized statistical rating organizations ("NRSROs") or be of
comparable quality to securities having such ratings. An NRSRO's two highest
rating categories are determined without regard for sub-categories and
gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc.
("Moody's"), or FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service, Inc.
("Fitch") are all considered rated in one of the two highest short-term rating
categories. The Fund will follow applicable regulations in determining whether a
security rated by more than one
NRSRO can be treated as being in one of the two highest short-term rating
categories; currently, such securities must be rated by two NRSROs in one of
their two highest categories. See "Regulatory Compliance."
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit-enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit-enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
The Fund may have more than 25% of its total assets invested in securities
credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Trustees, certain restricted securities are considered to be
liquid. To the extent restricted securities are deemed to be illiquid, the Fund
will limit their purchase, together with other securities considered to be
illiquid, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
Pennsylvania municipal securities on a when-issued or delayed delivery basis. In
when-issued and delayed delivery transactions, the Fund relies on the seller to
complete the transaction. The seller's failure to complete the transaction may
cause the Fund to miss a price or yield considered to be advantageous.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term, non-Pennsylvania municipal
tax-exempt obligations or other taxable, temporary investments. All temporary
investments will satisfy the same credit quality standards as the Fund's
acceptable investments. See "Ratings" above. Temporary investments include:
notes issued by or on behalf of municipal or corporate issuers; marketable
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; and repurchase agreements (arrangements in which banks,
broker/dealers, and other recognized financial institutions sell the Fund a
temporary investment and agree to repurchase it at a mutually agreed upon time
and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax
or personal income taxes imposed by the Commonwealth of Pennsylvania.
PENNSYLVANIA MUNICIPAL SECURITIES
Pennsylvania municipal securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Pennsylvania municipal securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS
Some securities dealers are willing to sell municipal securities to the Fund
accompanied by their commitments to repurchase the municipal securities prior to
maturity, at the Fund's option, for the amortized cost of the municipal
securities at the time of repurchase. These arrangements are not used to protect
against changes in the market value of municipal securities. They permit the
Fund, however, to remain fully invested and still provide liquidity to satisfy
redemptions. The cost of municipal securities accompanied by these "standby"
commitments could be greater than the cost of Municipal Securities without such
commitments. Standby commitments are not marketable or otherwise assignable and
have value only to the Fund. The default or bankruptcy of a securities dealer
giving such a commitment would not affect the quality of the municipal
securities purchased. However, without a standby commitment, these securities
could be more difficult to sell. The Fund enters into standby commitments only
with those dealers whose credit the investment adviser believes to be of high
quality.
PENNSYLVANIA INVESTMENT RISKS
Yields on Pennsylvania municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the Commonwealth of Pennsylvania
or its municipalities could impact the Fund's portfolio. The ability of the Fund
to achieve its investment objective also depends on the continuing ability of
the issuers of Pennsylvania municipal securities and demand features for such
securities, or the credit enhancers of either, to meet their obligations for the
payment of interest and principal when due.
Investing in Pennsylvania municipal securities which meet the Fund's quality
standards may not be possible if the Commonwealth of Pennsylvania or its
municipalities do not maintain their high quality, short-term credit ratings. In
addition, certain Pennsylvania constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could result
in adverse consequences affecting Pennsylvania municipal securities. An expanded
discussion of the current economic risks associated with the purchase of
Pennsylvania municipal securities is contained in the Combined Statement of
Additional Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified investment portfolio because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, with
regard to at least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 15% of the value of total assets to secure such
borrowings.
In order to pass-through to investors the tax-free income from the Fund for
purposes of the Pennsylvania Personal Income Tax, the Fund will invest in
securities for income earnings rather than trading for profit. The Fund will not
vary its investments, except to: (i) eliminate unsafe investments and
investments not consistent with the preservation of the capital or the tax
status of the investments of the Fund; (ii) honor redemption orders, meet
anticipated redemption requirements, and negate gains from discount purchases;
(iii) maintain a constant net asset value per unit pursuant to, and in
compliance with, an order or rule of the United States Securities and Exchange
Commission; (iv) reinvest the earnings from securities in like securities; or
(v) defray normal administrative expenses.
The above investment limitation cannot be changed without shareholder approval.
The following investment limitation, however, can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective.
The Fund will not invest more than 5% of its total assets in industrial
development bonds or other municipal securities when the payment of principal
and interest is the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations, including the
operation of any predecessor.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Combined Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which regulates
money market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF FEDERATED MUNICIPAL TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of
Trustees is responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .50 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for the voluntary waiver of the advisory
fee by the adviser, the adviser may voluntarily waive some or all of the
advisory fee. This does not include reimbursement to the Fund of any
expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The adviser can terminate this voluntary waiver
of expenses at any time at its sole discretion. The adviser has also
undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATIVE ARRANGEMENTS. The distributor may select brokers and dealers to
provide distribution and administrative services. The distributor may also
select administrators (including depository institutions such as commercial
banks and savings and loan associations) to provide administrative services.
These administrative services include, but are not limited to, distributing
prospectuses and other information, providing accounting assistance, and
communicating or facilitating purchases and redemptions of Shares.
Brokers, dealers, and administrators will receive fees from the distributor
based upon Shares owned by their clients or customers. The fees are calculated
as a percentage of the average aggregate net asset value of shareholder accounts
during the period for which the brokers, dealers, and administrators provide
services. Any fees paid for these services by the distributor will be reimbursed
by the adviser.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings and loan association) to become an underwriter or
distributor of securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Board of Trustees will consider appropriate changes in the administrative
services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary
of Federated Investors, provides the Fund with the administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services, Inc. provides these at approximate cost.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per Share is determined by adding the interest of the Shares in the value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding.
The Fund, of course, cannot guarantee that its net asset value will always
remain at $1.00 per Share.
INVESTING IN INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open for business. Shares may be purchased either by
wire or by mail. The Fund reserves the right to reject any purchase request. To
purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) that same day. Federal funds should be wired as follows: State Street Bank
and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
Pennsylvania Municipal Cash Trust--Institutional Service Shares; Fund Number
(this number can be found on the account statement or by contacting the Fund);
Group Number or Order Number; Nominee or Institution Name; and ABA Number
011000028. Shares cannot be purchased by wire on days on which the New York
Stock Exchange is closed and on federal holidays restricting wire transfers..
BY MAIL. To purchase Shares by mail, send a check made payable to Pennsylvania
Municipal Cash Trust--Institutional Service Shares to Federated Services
Company, c/o State Street Bank and Trust Company, P.O. Box 8602, Boston,
Massachusetts 02266-8602. Orders by mail are considered received when payment by
check is converted by State Street Bank into federal funds. This is normally the
next business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Shares is $25,000. However, an account may
be opened with a smaller amount as long as the $25,000 minimum is reached within
90 days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund. Individual accounts
established through a bank or broker may be subject to a different minimum
investment requirement.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a bank or broker may be charged an additional service fee by that
bank or broker.
The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Financial
institutions holding Shares in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the financial institution with regard to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
1:00 P.M. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the day after the check is converted, upon
instruction of the transfer agent, into federal funds. Dividends are
automatically reinvested on payment dates in additional Shares unless cash
payments are requested on an application or by contacting the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses,
if any, could result in a decrease in dividends. If, for some extraordinary
reason, the Fund realizes net long-term or short-term capital gains, it will
distribute them at least once every 12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund. Redemption
requests received before 12:00 noon (Eastern time) are not entitled to that
day's dividend. A daily dividend will be paid on Shares redeemed if the
redemption request is received after 12:00 noon (Eastern time). However, the
proceeds are not wired until the following business day. If at any time, the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders will be promptly notified.
An authorization form permitting the Fund to accept redemption requests by
telephone must first be completed. Authorization forms and information on this
service are available from Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for loses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, shareholders may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as Written Requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name and class of shares,
his account number, and the share or dollar amount requested. If share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
CHECKWRITING. At the shareholder's request, State Street Bank will establish a
checking account for redeeming Shares. For further information, contact
Federated Securities Corp.
A fee may be charged for this service. With a Fund checking account, Shares may
be redeemed simply by writing a check. The redemption will be made at the net
asset value on the date that State Street
Bank presents the check to the Fund. A check may not be written to close an
account. If a shareholder wishes to redeem Shares and have the proceeds
available, a check may be written and negotiated through the shareholder's bank.
Checks should never be sent to State Street Bank to redeem Shares. Cancelled
checks are returned to the shareholder each month.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, the proceeds from the redemption of those
Shares are not available, and the Shares may not be exchanged, until the Fund or
its agents are reasonably certain that the purchase check has cleared, which
could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances. Trustees may be removed by the Trustees or by
shareholders at a special meeting. A special meeting of the shareholders for
this purpose shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of all series in the
Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for such
acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument that the
Trust or its Trustees enter into or sign.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, 75% of the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income or realized net
short-term gains earned on some temporary investments are taxed as ordinary
income.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
PENNSYLVANIA TAX CONSIDERATIONS
Under current Pennsylvania law, distributions made by the Fund will be exempt
from Pennsylvania personal income tax to the extent that such distributions
represent exempt-interest dividends as defined in the Internal Revenue Code, and
are attributable to obligations issued by the Commonwealth of Pennsylvania and
its political subdivisions, agencies, and instrumentalities or certain
qualifying obligations of the United States, its territories or possessions, the
interest from which is statutorily free from state taxation in the Commonwealth
of Pennsylvania ("exempt obligations"). Conversely, to the extent that
distributions made by the Fund are derived from other types of obligations, such
distributions will not be exempt from Pennsylvania personal income tax.
Shareholders subject to the Pennsylvania corporate net income tax will not be
subject to corporate net income tax on distributions of interest made by the
Fund, provided such distributions are attributable to exempt obligations, and
further provided such distributions are not included in such shareholder's
federal taxable income determined before net operating loss carryovers and
special deductions.
Shares of the Fund that are held by individual shareholders subject to the
Pennsylvania county personal property tax will be exempt from such tax to the
extent that the Fund's portfolio consists of exempt obligations on the annual
assessment date.
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from regular state income taxes in
states other than Pennsylvania or from personal property taxes. State laws
differ on this issue and shareholders are urged to consult their own tax
advisers regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield, effective yield, and
tax-equivalent yield for Institutional Service Shares.
The yield of Institutional Service Shares represents the annualized rate of
income earned on an investment in Institutional Service Shares over a seven-day
period. It is the annualized dividends earned during the period on the
investment, shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but, when annualized, the income earned by an
investment in Institutional Service Shares is assumed to be reinvested daily.
The effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. The tax-equivalent yield of
Institutional Service Shares is calculated similarly to the yield, but is
adjusted to reflect the taxable yield that Institutional Service Shares would
have had to earn to equal their actual yield, assuming a specific tax rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Institutional Service Shares after reinvesting all income
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
Yield, effective yield, and tax-equivalent yield will be calculated separately
for Institutional Service Shares and Cash Series Shares. Because Cash Series
Shares are subject to 12b-1 fees, the yield, the
effective yield, and the tax-equivalent yield for Institutional Service Shares,
will exceed the yield, the effective yield, and the tax-equivalent yield for
Cash Series Shares for the same period.
From time to time, the Fund may advertise the performance of Institutional
Service Shares using certain reporting services and/or compare the performance
of Institutional Service Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Cash Series Shares are sold primarily to retail customers of financial
institutions. Cash Series Shares are sold at net asset value. Investments in
Cash Series Shares are subject to a minimum initial investment of $10,000.
Cash Series Shares are distributed pursuant to a 12b-1 Plan adopted by the Trust
whereby the distributor is paid a fee of .40 of 1% of the Cash Series Shares'
average daily net assets.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares of the Fund
than from another class of shares. While the distributor may in addition to fees
paid pursuant to the 12b-1 Plan, pay an administrative fee to a financial
institution or broker for administrative services provided to a class, such a
fee will not be an expense of the class, but will be reimbursed to the
distributor by the investment adviser.
The amount of dividends payable to Institutional Service Shares will exceed that
of Cash Series Shares by the difference between class expenses and distribution
expenses borne by shares of each respective class. The stated advisory fee is
the same for both classes of shares.
PENNSYLVANIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--CASH SERIES SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 40.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C> <C>
1993 1992 1991*
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------
Net investment income 0.02 0.03 0.03
- ---------------------------------------------------------------------------------- --------- --------- ---------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.03) (0.03)
- ---------------------------------------------------------------------------------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------- --------- --------- ---------
TOTAL RETURN** 1.83% 2.67% 3.55%(a)
- ----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------
Expenses 0.97% 0.96% 0.78%(b)
- ----------------------------------------------------------------------------------
Net investment income 1.88% 2.64% 3.92%(b)
- ----------------------------------------------------------------------------------
Expense waiver/reimbursement(c) 0.12% 0.12% 0.28%(b)
- ----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $18,561 $24,694 $19,846
- ----------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from January 25, 1991 (date of initial
public offering) to October 31, 1991.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) The voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--103.4%
- -----------------------------------------------------------------------------------
PENNSYLVANIA--102.8%
-------------------------------------------------------------------
$ 1,000,000 Allegheny County, PA, IDA Weekly VRDNs (Series 1991)/(Mine Safety
Appliances Co.)/(Sanwa Bank Ltd. LOC) P-1 $ 1,000,000
-------------------------------------------------------------------
1,900,000 Allegheny County, PA, IDA Weekly VRDNs (Series 1991B)/(Shandon,
Inc.)/(PNC Bank N.A. LOC)/(Subject to AMT) P-1 1,900,000
-------------------------------------------------------------------
3,400,000 Allegheny County, PA, IDA Weekly VRDNs, Adjustable Rate Commercial
Development Revenue Bonds (Series 1992)/(Eleven Parkway Center
Associates/(Mellon Bank N.A. LOC) Aa3 3,400,000
-------------------------------------------------------------------
6,000,000 Allegheny County, PA, IDA, 2.70% CP (USX, Inc.)/(Long Term Credit
Bank of Japan Ltd. LOC), Mandatory Tender 12/8/93 A-1 6,000,000
-------------------------------------------------------------------
6,500,000 Allegheny County, PA, IDA, 2.80% CP (Duquesne Light
Company)/(Barclays Bank PLC LOC), Mandatory Tender 10/20/94 A-1+ 6,500,000
-------------------------------------------------------------------
1,500,000 Allegheny County, PA, IDA, 2.85% CP (USX, Inc.)/(Long Term Credit
Bank of Japan Ltd. LOC), Mandatory Tender 11/10/93 A-1 1,500,000
-------------------------------------------------------------------
4,000,000 Allegheny County, PA, Weekly VRDNs (Series C38)/ (MBIA Insured) VMIG1 4,000,000
-------------------------------------------------------------------
2,000,000 Athens, PA, Area School District, 2.77% TRANs, 6/30/94 NR(3) 2,000,503
-------------------------------------------------------------------
6,500,000 Authority for Improvements in Municipalities, PA, Weekly
VRDNs (Pooled Hospital & Equipment Leasing Program)/ (MBIA Insured) VMIG1 6,500,000
-------------------------------------------------------------------
$ 1,350,000 Baldwin, PA, 2.87% TRANs, 12/31/93 NR $ 1,350,192
-------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------
2,000,000 Bedford County, PA, IDA Weekly VRDNs (Series 1985)/ (Sepa, Inc.
Facility)/(Banque Paribas LOC) A-1 2,000,000
-------------------------------------------------------------------
3,600,000 Bensalem Township, PA, 2.83% TRANs, 12/31/93 NR(3) 3,600,282
-------------------------------------------------------------------
2,255,000 Berks County, PA, IDA Weekly VRDNs (Beacon Container)/(Hamilton
National Bank LOC)/(Subject to AMT) P-1 2,255,000
-------------------------------------------------------------------
1,385,000 Berks County, PA, IDA Weekly VRDNs (Quaker Maid Meats,
Inc.)/(Meridian Bank LOC)/(Subject to AMT) VMIG1 1,385,000
-------------------------------------------------------------------
2,300,000 Berks County, PA, IDA Weekly VRDNs (Series 1988)/
(Arrow International, Inc.)/(Hamilton National Bank
LOC)/(Subject to AMT) P-1 2,300,000
-------------------------------------------------------------------
3,000,000 Blackhawk, PA, School District, 2.72% TRANs, 6/30/94 NR(3) 3,000,000
-------------------------------------------------------------------
3,190,000 Bucks County, PA, IDA Weekly VRDNs (Pennsylvania
Associates)/(Meridian National Bank LOC) P-1 3,190,000
-------------------------------------------------------------------
1,000,000 Bucks County, PA, IDA Weekly VRDNs (Series 1986)/ (Winks Lane,
Inc.)/(Mellon Bank N.A. LOC) P-1 1,000,000
-------------------------------------------------------------------
5,450,000 Bucks County, PA, IDA Weekly VRDNs (Series 1991)/ (Cabot Medical
Corp.)/(Meridian Bank LOC)/(Subject to AMT) VMIG1 5,450,000
-------------------------------------------------------------------
1,000,000 Butler County, PA, IDA Weekly VRDNs (Mine Safety
Appliances Co.)/(Sanwa Bank Ltd. LOC) P-1 1,000,000
-------------------------------------------------------------------
3,000,000 Butler County, PA, IDA Weekly VRDNs (Mine Safety
Appliances Co.)/(Sanwa Bank Ltd. LOC)/(Subject
to AMT) P-1 3,000,000
-------------------------------------------------------------------
1,000,000 Butler County, PA, IDA Weekly VRDNs (Series 1992B)/
(Mine Safety Appliances)/(Sanwa Bank Ltd. LOC)/
(Subject to AMT) P-1 1,000,000
-------------------------------------------------------------------
$ 5,000,000 Cambria County, PA, IDA Weekly VRDNs (Cambria Cogeneration
Corp.)/(Fuji Bank Ltd. LOC)/(Subject to AMT) VMIG1 $ 5,000,000
-------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------
700,000 Cambria County, PA, IDA Weekly VRDNs (Cambria Cogeneration)/(Fuji
Bank Ltd. LOC)/(Subject to AMT) A-1 700,000
-------------------------------------------------------------------
2,500,000 Cambria County, PA, IDA Weekly VRDNs (Cambria Cogeneration
Corp.)/(Fuji Bank Ltd. LOC)/(Subject to AMT) VMIG1 2,500,000
-------------------------------------------------------------------
2,200,000 Carbon County, PA, IDA Weekly VRDNs (Summit Management & Utilities,
Inc.)/(PNC Bank, Northeast PA LOC)/(Subject to AMT) A-1 2,200,000
-------------------------------------------------------------------
7,300,000 Clearfield County, PA, IDA Weekly VRDNs (Penn Traffic
Co.)/(Algemene Bank Nederland LOC)/(Subject to AMT) P-1 7,300,000
-------------------------------------------------------------------
1,565,000 Clinton County, PA, 2.87% GO TRANs, 12/31/93 NR(3) 1,565,174
-------------------------------------------------------------------
2,500,000 Clinton County, PA, IDA Weekly VRDNs (Armstrong World
Industries)/(Mellon Bank N.A. LOC) P-1 2,500,000
-------------------------------------------------------------------
2,285,000 Clinton County, PA, Municipal Authority Weekly VRDNs (Series
A)/(Lock Haven Hospital)/(Mellon Bank N.A. LOC) P-1 2,285,000
-------------------------------------------------------------------
10,000,000 Commonwealth of Pennsylvania, 3.25% TANs, 6/30/94 SP-1+ 10,035,576
-------------------------------------------------------------------
1,825,000 Conrad Weiser, PA, Area School District, 2.72% TRANs, 6/30/94 NR(3) 1,825,000
-------------------------------------------------------------------
4,000,000 Delaware County, PA, IDA, 2.70% CP (Standard Oil Co.)/(B.P. North
America Guaranty), Mandatory Tender 1/13/94 A-1+ 4,000,000
-------------------------------------------------------------------
2,000,000 Delaware County, PA, PCA, 2.80% CP (Philadelphia
Electric Co.)/(FGIC Insured), Mandatory Tender 3/23/94 A-1+ 2,000,000
-------------------------------------------------------------------
$ 1,370,000 Eastern York, PA, School District, 2.78% TRANs, 6/30/ 94 NR(3) $ 1,370,794
-------------------------------------------------------------------
800,000 Erie County, PA, IDA Weekly VRDNs (P.H.B., Inc.)/ (Marine Bank
LOC)/(Subject to AMT) P-1 800,000
-------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------
625,000 Erie County, PA, IDA Weekly VRDNs (Series 1985)/
(R.P-C Value, Inc.)/(PNC Bank N.A. LOC) P-1 625,000
-------------------------------------------------------------------
800,000 Erie County, PA, IDA Weekly VRDNs (Series B)/(P.H.B., Inc.)/(Marine
Bank LOC)/(Subject to AMT) P-1 800,000
-------------------------------------------------------------------
1,780,000 Erie County, PA, IDA Weekly VRDNs Multi-Mode Revenue Reference
Bonds (Corry Manor, Inc.)/(Marine
Bank LOC) A-1 1,780,000
-------------------------------------------------------------------
750,000 Forest County, PA, IDA Weekly VRDNs (Industrial Timber and Land
Co.)/(National City Bank LOC) P-1 750,000
-------------------------------------------------------------------
1,530,000 Forest County, PA, IDA Weekly VRDNs (Marienville Healthcare
Facility)/(PNC Bank N.A. LOC) P-1 1,530,000
-------------------------------------------------------------------
2,100,000 Franklin County, PA, IDR Weekly VRDNs (Guarriello Limited
Partnership)/(PNC Bank N.A. LOC)/(Subject to AMT) P-1 2,100,000
-------------------------------------------------------------------
2,100,000 Grove City, PA, School District, 2.79% TRANs, 6/30/94 NR(3) 2,101,218
-------------------------------------------------------------------
3,000,000 Lackawanna County, PA, IDA Weekly VRDNs (Series 1992)/(HEM
Project)/(Corestate Bank N.A. LOC)/
(Subject to AMT) P-1 3,000,000
-------------------------------------------------------------------
4,900,000 Lehigh County, PA, General Purpose Authority Revenue Bonds Weekly
VRDNs (Series 1990)/(Phoebe Terrace, Inc.)/(Meridian Bank LOC) P-1 4,900,000
-------------------------------------------------------------------
3,400,000 Lehigh County, PA, IDA Weekly VRDNs (Cedar Crest College)/(PNC
Bank, Northeast PA LOC) A-1 3,400,000
-------------------------------------------------------------------
$ 4,800,000 Lehigh County, PA, IDA Weekly VRDNs (Series 1989A)/ (Hershey Pizza
Co., Inc.)/(PNC Bank, Northeast PA LOC)/(Subject to AMT) A-1 $ 4,800,000
-------------------------------------------------------------------
1,380,000 McKean County, PA, IDA Weekly VRDNs Multi-Mode Revenue Reference
Bonds (Bradford Manor, Inc.)/(Marine Bank, LOC) A-1 1,380,000
-------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------
3,300,000 Monroe County, PA, IDA PCR Weekly VRDNs (Cooper Industries)/(Sanwa
Bank Ltd. LOC) A-1+ 3,300,000
-------------------------------------------------------------------
1,500,000 Montgomery County, PA, IDA Weekly VRDNs (Series 1992)/(RJI Limited
Partnership)/(Meridian Bank LOC)/ (Subject to AMT) VMIG1 1,500,000
-------------------------------------------------------------------
2,800,000 Montgomery County, PA, IDA Weekly VRDNs (Thomas & Betts
Corp.)/(Wachovia Bank & Trust Co. N.A. LOC)/ (Subject to AMT) P-1 2,800,000
-------------------------------------------------------------------
2,725,000 Moon Township, PA, IDA Weekly VRDNs (Airport Hotel
Associates)/(Algemene Bank Nederland LOC) A-1+ 2,725,000
-------------------------------------------------------------------
5,000,000 North Lebanon Township, PA, Municipal Authority Mortgage Weekly
VRDNs (Grace Community, Inc.)/
(Meridian Bank LOC) VMIG1 5,000,000
-------------------------------------------------------------------
5,000,000 Northampton County, PA, IDA, 2.65% CP (Citizens Utilities
Company)/(Subject to AMT), Mandatory
Tender 12/10/93 A-1+ 5,000,000
-------------------------------------------------------------------
4,000,000 Northampton County, PA, IDA, 2.65% CP (Citizins
Utilities Company)/(Subject to AMT), Mandatory
Tender 12/14/93 A-1+ 4,000,000
-------------------------------------------------------------------
4,000,000 Northampton County, PA, IDA, 2.70% CP (Citizens Utilities
Company)/(Subject to AMT), Mandatory
Tender 1/20/94 A-1+ 4,000,000
-------------------------------------------------------------------
$ 375,000 Pennsylvania EDA Revenue Bonds Weekly VRDNs (O.D.I., Inc.)/(PNC
Bank N.A. LOC)/(Subject to AMT) Aa3 $ 375,000
-------------------------------------------------------------------
825,000 Pennsylvania EDA Revenue Bonds Weekly VRDNs (Ram Forest
Products)/(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 825,000
-------------------------------------------------------------------
1,750,000 Pennsylvania EDA Weekly VRDNs (Series G4)/ (Metamura Products,
Inc.)/(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 1,750,000
-------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------
825,000 Pennsylvania EDA Weekly VRDNs (PNC Bank N.A. LOC) P-1 825,000
-------------------------------------------------------------------
325,000 Pennsylvania EDA Weekly VRDNs (Cavert Wire Co.)/ (PNC Bank N.A.
LOC)/(Subject to AMT) Aa3 325,000
-------------------------------------------------------------------
3,900,000 Pennsylvania EDA Weekly VRDNs (Industrial Scientific Corp.)/(Mellon
Bank N.A. LOC)/(Subject to AMT) P-1 3,900,000
-------------------------------------------------------------------
1,800,000 Pennsylvania EDA Weekly VRDNs (Joseph J. Brunner, Inc.)/(PNC Bank
N.A. LOC)/(Subject to AMT) A-1 1,800,000
-------------------------------------------------------------------
875,000 Pennsylvania EDA Weekly VRDNs (Pioneer Fluid)/
(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 875,000
-------------------------------------------------------------------
950,000 Pennsylvania EDA Weekly VRDNs (Reale Associates)/ (PNC Bank N.A.
LOC)/(Subject to AMT) Aa3 950,000
-------------------------------------------------------------------
1,600,000 Pennsylvania EDA Weekly VRDNs (Series 1986)/(B.W. Ebensburg)/(Swiss
Bank LOC)/(Subject to AMT) VMIG1 1,600,000
-------------------------------------------------------------------
575,000 Pennsylvania EDA Weekly VRDNs (Series B8)/(Payne Printing Co.)/(PNC
Bank N.A. LOC)/(Subject to AMT) Aa3 575,000
-------------------------------------------------------------------
4,600,000 Pennsylvania EDA Weekly VRDNs (Walnut & Craig Street
Associates)/(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 4,600,000
-------------------------------------------------------------------
$ 3,000,000 Pennsylvania Floating Rate Trust Certificate, 2.65% Monthly TOBs
(Series 1993H)/(Commonwealth of Pennsylvania)/(AMBAC Insured),
11/1/93 NR(2) $ 3,000,000
-------------------------------------------------------------------
7,300,000 Pennsylvania HFA, 2.90% TOBs (First National Bank, Chicago BPA),
Optional Tender 4/1/94 NR(2) 7,300,000
-------------------------------------------------------------------
1,000,000 Pennsylvania HFA, Section 8 Assisted Residential Development
Refunding Bonds Weekly VRDNs (Series 1992A)/ (Capital Guaranty
Insured, Citibank N.A. BPA) NR(1) 1,000,000
-------------------------------------------------------------------
9,700,000 Pennsylvania Higher Education Assistance Agency
Weekly VRDNs (Fuji Bank Ltd. LOC)/(Subject to AMT) VMIG1 9,700,000
-------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------
5,600,000 Pennsylvania Higher Education Facilities Authority Weekly VRDNs
(Osteopathic Medical Center of
Philadelphia)/(Bank of New York LOC) VMIG1 5,600,000
-------------------------------------------------------------------
5,000,000 Pennsylvania Higher Education Facilities Authority, 2.90% Annual
TOBs (Carnegie Mellon University), Mandatory Tender 11/1/93 A-1 5,000,000
-------------------------------------------------------------------
4,100,000 Pennsylvania State Higher Education Assistance Agency Weekly VRDNs
(Student Loan Marketing Association LOC) A-1 4,100,000
-------------------------------------------------------------------
3,000,000 Pennsylvania State Higher Education Facilities Authority, 2.55%
Annual TOBs (Carnegie-Mellon University), Optional Tender 5/1/94 A-1 3,000,000
-------------------------------------------------------------------
9,625,000 Pennsylvania State Higher Education Facilities Authority, 2.85%
TOBs (Carnegie-Mellon University), Optional Tender 11/1/94 A-1 9,625,000
-------------------------------------------------------------------
5,800,000 Pennsylvania State University, 3.00% BANs (Series 93), 5/26/94 MIG1 5,811,948
-------------------------------------------------------------------
$ 2,900,000 Philadelphia Authority for Industrial Development
Weekly VRDNs (Series 1991A)/(Levin Corp.)/(PNC Bank N.A. LOC) P-1 $ 2,900,000
-------------------------------------------------------------------
19,300,000 Philadelphia Redevelopment Authority Multi-Family Revenue Bonds
Weekly VRDNs (Series 1985)/(Franklin Town Towers)/(Marine Midland
Bank N.A. and
Hong-Kong Shanghai Banking Corp. LOCs) A-1 19,300,000
-------------------------------------------------------------------
3,000,000 Philadelphia, PA, 2.70% CP GO Bonds (Series 1990)/
(Fuji Bank Ltd. LOC), Mandatory Tender 1/13/94 A-1 3,000,000
-------------------------------------------------------------------
5,930,000 Philadelphia, PA, HEFA, 2.70% Annual TOBs
(Pennsylvania Hospital)/(PNC Bank N.A. LOC),
Optional Tender 7/1/94 A-1 5,930,000
-------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------
3,500,000 Philadelphia, PA, IDA, 3.15% Annual TOBs (Series A)/ (Suite
Hotel)/(Bank of Tokyo Ltd. LOC), Optional Tender 6/1/94 A-1+ 3,500,000
-------------------------------------------------------------------
7,600,000 Philadelphia, PA, IDR Weekly VRDNs (Series 93)/
(Sackett Development)/(Mellon Bank N.A. LOC) P-1 7,600,000
-------------------------------------------------------------------
8,000,000 Philadelphia, PA, School District Weekly VRDNs
(Series PT-3)/(MBIA Insured) VMIG1 8,000,000
-------------------------------------------------------------------
1,300,000 Phoenixville, PA, 2.80% GO TRANs, 12/31/93 NR(3) 1,300,000
-------------------------------------------------------------------
4,450,000 Pheonixville, PA, Area School District, 2.82% TRANs,
6/30/94 NR(3) 4,452,836
-------------------------------------------------------------------
5,000,000 Pittsburgh, PA, Urban Redevelopment Authority, 2.85% Mortgage
Revenue Bonds (Series B)/(Barclays Bank PLC Investment
Agreement)/(Subject to AMT), Mandatory Tender 6/1/94 A-1+ 5,000,000
-------------------------------------------------------------------
$ 1,800,000 Port Authority of Allegheny County, PA, 2.90% Grant Anticipation
Notes (Series 1993A)/(PNC Bank N.A. LOC), 8/1/94 P-1 $ 1,800,000
-------------------------------------------------------------------
1,000,000 Quakertown, PA, HDA Weekly VRDNs (The HPS Group Pooled
Finance)/(First National Bank, Chicago LOC) VMIG1 1,000,000
-------------------------------------------------------------------
2,400,000 Riverside, PA, Beaver County School District, 2.77% TRANs, 6/30/94 NR(3) 2,400,762
-------------------------------------------------------------------
2,000,000 Shaler Township, PA, 2.86% GO TRANs, 12/31/93 NR(3) 2,000,189
-------------------------------------------------------------------
1,550,000 Shippensburg, PA, Area School District, 2.73% TRANs,
6/30/94 NR(3) 1,550,000
-------------------------------------------------------------------
10,000,000 Upper Allegheny, PA, Joint Sanitary Authority, 2.85% Annual TOBs
(Series 1986C)/(AIG Investment
Agreement), Mandatory Tender 7/15/94 A-1+ 10,000,000
-------------------------------------------------------------------
2,180,000 Upper Southampton Township, PA, 2.85% GO TRANs, 12/31/93 NR(3) 2,180,347
-------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------
4,000,000 Venango, PA, IDA, 2.60% CP (Series 1993)/(Scrubgrass Power
Co.)/(National Westminster Bank PLC LOC)/
(Subject to AMT), Mandatory Tender 11/29/93 A-1+ 4,000,000
-------------------------------------------------------------------
2,000,000 Venango, PA, IDA, 2.60% CP (Series A)/(Scrubgrass Power
Co.)/(National Westminster Bank PLC LOC)/
(Subject to AMT), Mandatory Tender 11/24/93 A-1+ 2,000,000
-------------------------------------------------------------------
2,000,000 Washington County, PA, HDA Weekly VRDNs (Keystone Diversified
Management Corp.)/(Mellon Bank N.A. LOC) A-1 2,000,000
-------------------------------------------------------------------
1,625,000 Washington County, PA, IDA Weekly VRDNs (Series 1988)/(Cameron
Coca-Cola, Inc.)/(Mellon Bank N.A. LOC) P-1 1,625,000
-------------------------------------------------------------------
$ 1,215,000 Washington County, PA, IDA Weekly VRDNs (Series 1990)/(Mac
Plastics, Inc.)/(National City Bank LOC)/ (Subject to AMT) Aa $ 1,215,000
-------------------------------------------------------------------
1,300,000 Washington County, PA, Municipal Authority Facilities Revenue Bonds
Weekly VRDNs (Series 1985)/(Pooled Capital Program)/(Sumitomo Bank
Ltd. LOC) P-1 1,300,000
-------------------------------------------------------------------
1,100,000 West Chester, PA, 3.11% GO TRANs, 12/31/93 NR(3) 1,100,457
-------------------------------------------------------------------
12,000,000 Westmoreland County, PA, 2.85% TRANs (PNC Bank N.A. LOC), 12/31/93 P-1 12,000,000
-------------------------------------------------------------------
1,000,000 Whitehall, PA, 2.97% GO TRANs, 12/31/93 NR(3) 1,000,196
-------------------------------------------------------------------
3,000,000 York County, PA, IDA Weekly VRDNs (West Manchester Inn
Associates)/(Mellon Bank N.A. LOC) P-1 3,000,000
------------------------------------------------------------------- ---------------
Total 346,595,474
------------------------------------------------------------------- ---------------
PUERTO RICO--0.6%
-------------------------------------------------------------------
2,100,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit
Suisse and Sumitomo Bank Ltd. LOCs) A-1+ 2,100,000
------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS (AT AMORTIZED COST) $ 348,695,474\
------------------------------------------------------------------- ---------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------------------
</TABLE>
\ Also represents cost for federal tax purposes.
* See Notes to Portfolio of Investments.
Note: The category of investments is shown as a percentage of net assets
($337,079,400) at October 31, 1993.
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
AMT--Alternative Minimum Tax
BANs--Bond Anticipation Notes
BPA--Bond Purchase Agreement
CP--Commercial Paper
EDA--Economic Development Authority
FGIC--Financial Guaranty Insurance Company
GO--General Obligation
HDA--Hospital Development Authority
HEFA--Health and Education Facilities Authority
HFA--Housing Finance Authority/Agency
IDA--Industrial Development Authority
IDR--Industrial Development Revenue
LOC--Letter of Credit
LOCs--Letters of Credit
MBIA--Municipal Bond Investors Assurance
PCA--Pollution Control Authority
PCR--Pollution Control Revenue
TANs--Tax Anticipation Notes
TOBs--Tender Option Bonds
TRANs--Tax and Revenue Anticipation Notes
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATIONS RATINGS
S&P
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S
Moody's short-term ratings are designated Moody's Investment Grade (MIG or VMIG
(see below)). The purpose of the MIG or VMIG ratings is to provide investors
with a simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
FITCH
Fitch's short-term ratings place greater emphasis on the existence of liquidity
necessary to meet the issuer's obligations in a timely manner.
F-1 Strongest degree of assurance for timely payment. Those issues determined to
provide exceptionally strong credit quality are given a plus (+)
designation.
F-2 Notes reflecting a degree of assurance for timely payment only slightly less
in degree than the highest category.
VARIABLE RATE DEMAND NOTES (VRDNS)
AND
TENDER OPTION BONDS (TOBS)
RATINGS
S&P
Standard & Poor's assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-1+, AA/A-1K, and A/A-1. (The
definitions for the short-term ratings are provided below.)
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
MOODY'S
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity.
In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the
first representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the second representing an evaluation of
the degree of risk associated with the demand feature. The VMIG rating can be
assigned a 1 or 2 designation using the same definitions described above for the
MIG rating.
FITCH
Fitch usually assigns two ratings to long-term debt issues that include
provisions for a variable rate demand feature. The long-term rating addresses
the ability of the obligor to pay debt service and the short-term rating
addresses the timely payment of the demand feature. Exemples of rating
designations are as follows: AAA/F-1+, AA/F-1K, and A/F-1. (The definitions for
the long-term and short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
S&P
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."
MOODY'S
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
The following is an explanation of the Fitch ratings. These ratings are not
referenced in the Portfolio of Investments.
FITCH
F-1 Issues assigned this rating relfect a strong degree of assurance for timely
payment. Those issuers determined to possess the strongest degree of
assurance for timely payment are denoted with a plus (+) sign designation.
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
F-2 Issuers carrying this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the "F-1+" and
"F-1" categories
LONG-TERM DEBT RATINGS
(INVESTMENT GRADE)
S&P
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB Debt rated "BBB" is regarding as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest than
debt rated in higher ratings categories.
MOODY'S
Aaa Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large margin and principal
is secure. While the various protective elements are likely to change, such
changes which can be foreseen are most unlikely to impair the fundamentally
strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in AAA securities.
A Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
FITCH
AAA Bonds that are rated AAA are of the highest credit quality. The obligor has
an exceptionally strong ability to pay debt service.
AA Bonds that are rated AA are of very high quality. The obligor has a very
strong ability to pay debt service. Debt rated in this category may also
have a (+) or (-) sign with a rating to indicate the relative position
within the rating category.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to
be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and
therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
NR indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P, Moody's, or Fitch with respect to short-term
indebtedness. However, management considers them to be of comparable quality to
securities rated in one of the two highest short-term ratings categories by a
nationally recognized statistical ratings organization.
NR(1)The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by Fitch.
NR(2)The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch.
NR(3)The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "A" by Standard & Poor's, Moody's, or Fitch.
NR(4)The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by Fitch.
PENNSYLVANIA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $ 348,695,474
- ------------------------------------------------------------------------------------------------
Cash 832,981
- ------------------------------------------------------------------------------------------------
Interest receivable 1,900,397
- ------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 1,524
- ------------------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 16,988
- ------------------------------------------------------------------------------------------------ ---------------
Total assets 351,447,364
- ------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------------
Payable for investments purchased $ 13,725,000
- --------------------------------------------------------------------------------
Dividends payable 497,169
- --------------------------------------------------------------------------------
Payable for Fund shares redeemed 10,000
- --------------------------------------------------------------------------------
Accrued expenses and other liabilities 135,795
- -------------------------------------------------------------------------------- --------------
Total liabilities 14,367,964
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS for 337,079,400 shares of beneficial interest outstanding $ 337,079,400
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- ------------------------------------------------------------------------------------------------
Institutional Service Shares ($318,518,627 / 318,518,627 shares
of beneficial interest outstanding) $1.00
- ------------------------------------------------------------------------------------------------ ---------------
Cash Series Shares ($18,560,773 / 18,560,773 shares of
beneficial interest outstanding) $1.00
- ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 9,700,827
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 1,740,351
- ------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 338,801
- ------------------------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 195,678
- ------------------------------------------------------------------------------------
Trustees' fees 8,055
- ------------------------------------------------------------------------------------
Auditing fees 20,958
- ------------------------------------------------------------------------------------
Legal fees 14,712
- ------------------------------------------------------------------------------------
Printing and postage 24,161
- ------------------------------------------------------------------------------------
Fund share registration costs 40,411
- ------------------------------------------------------------------------------------
Distribution services fees (Note 5) 91,235
- ------------------------------------------------------------------------------------
Insurance premiums 14,422
- ------------------------------------------------------------------------------------
Miscellaneous 2,742
- ------------------------------------------------------------------------------------ -------------
Total expenses 2,491,526
- ------------------------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) 415,874
- ------------------------------------------------------------------------------------ -------------
Net expenses 2,075,652
- --------------------------------------------------------------------------------------------------- -------------
Net investment income $ 7,625,175
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1993 1992
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------
Net investment income $ 7,625,175 $ 10,365,086
- ----------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -----------------------------------------------------------------------------
Institutional Service Shares (7,195,929) (9,810,541)
- -----------------------------------------------------------------------------
Cash Series Shares (429,246) (554,545)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from distributions to shareholders (7,625,175) (10,365,086)
- -----------------------------------------------------------------------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------
Proceeds from sale of shares 932,887,176 846,311,595
- -----------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 1,613,211 2,064,869
- -----------------------------------------------------------------------------
Cost of shares redeemed (930,314,734) (852,494,450)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from Fund share transactions 4,185,653 (4,117,986)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets 4,185,653 (4,117,986)
- -----------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------
Beginning of period 332,893,747 337,011,733
- ----------------------------------------------------------------------------- ---------------- ----------------
End of period $ 337,079,400 $ 332,893,747
- ----------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company
with several portfolios. The financial statements included herein are only those
of Pennsylvania Municipal Cash Trust (the "Fund"). The financial statements of
the other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
Effective December 31, 1990, the Fund provides two classes of shares
("Institutional Service Shares" and "Cash Series Shares"). Cash Series Shares
are identical in all respects to Institutional Service Shares except that Cash
Series Shares are sold pursuant to a distribution plan ("Plan") adopted in
accordance with Investment Company Act Rule 12b-1.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined
that the best method currently available for valuing portfolio securities
is amortized cost. The Fund's use of the amortized cost method to value its
portfolio securities is conditioned on its compliance with Rule 2a-7 under
the Investment Company Act of 1940.
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state, than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such
factors, at October 31, 1993, 67.2% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies of various
financial institutions. The aggregate percentages by financial institution
ranged from 0.3% to 14.0% of total investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest earned net of premium, and original issue discount as
required by the Internal Revenue Code.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code (the "Code") applicable to investment companies and
to distribute to shareholders each year all of its net income. Accordingly,
no provision for federal tax is necessary. Dividends paid by the Fund
representing net interest received on tax-exempt municipal securities are
not includable by shareholders as gross income for federal income tax
purposes because the Fund intends to meet certain requirements of the Code
applicable to regulated investment companies which will enable the Fund to
pay exempt-interest dividends. The portion of such interest, if any, earned
on private
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
activity bonds issued after August 7, 1986 may be considered a tax
preference item to shareholders for the purpose of computing the
alternative minimum tax.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Fund
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objective and policies
and not for the purpose of investment leverage. The Fund will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Fund will maintain security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method through October 1994.
F. EXPENSES--Expenses of the Fund (other than distribution services fees) and
waivers and reimbursements, if any, are allocated to each class of shares
based on its relative daily average net assets for the period. Expenses
incurred by the Trust which do not specifically relate to an individual
Fund are allocated among all Funds based on a Fund's relative net asset
value size or as deemed appropriate by the administrator.
G. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) DIVIDENDS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash, or in additional
shares at the net asset value on the payable date.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1993 capital paid-in aggregated $337,079,400.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SERVICE SHARES 1993 1992
<S> <C> <C>
Shares outstanding, beginning of period 308,199,611 317,165,299
- --------------------------------------------------------------------------------
Shares sold 889,559,906 794,876,747
- --------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 1,201,127 1,514,034
- --------------------------------------------------------------------------------
Shares redeemed (880,442,017) (805,356,469)
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period 318,518,627 308,199,611
- -------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
CASH SERIES SHARES 1993 1992
<S> <C> <C>
Shares outstanding, beginning of period 24,694,136 19,846,434
- --------------------------------------------------------------------------------
Shares sold 43,327,270 51,434,848
- --------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 412,084 550,835
- --------------------------------------------------------------------------------
Shares redeemed (49,872,717) (47,137,981)
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period 18,560,773 24,694,136
- -------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Management, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to .50 of 1% of the Fund's
average daily net assets. The Adviser has voluntarily agreed to waive a portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time in its sole discretion. During the fiscal year ended October 31, 1993, the
Adviser earned $1,740,351 as its advisory fee, of which $415,874 was voluntarily
waived.
During the year ended October 31, 1993, pursuant to Rule 17a-7 of the Investment
Company Act of 1940, the Fund engaged in purchase and sale transactions with
other funds advised by the Adviser amounting to $419,475,000 and $412,510,000,
respectively. These purchases and sales were conducted on an arms-length basis
insofar as they were transacted for cash consideration only, at independent
current market prices and without brokerage commission, fee or other
remuneration.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Trust will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the assets of the
Fund, for fees it paid which relate to the distribution and administration of
the Fund's Cash Series Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.40 of 1% of the average daily net assets of the
Cash Series Shares, annually, to pay commissions, maintenance fees and to
compensate the distributor. During the year ended October 31, 1993, FSC earned
$91,235 in distribution services fees, none of which was voluntarily waived.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Certain Officers and Trustees of the
Trust are Officers and Directors of the above corporations.
(6) CURRENT CREDIT RATINGS
Current credit ratings and related notes are unaudited.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST (Pennsylvania Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of
Pennsylvania Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio investments as of October 31, 1993, the related statement of
operations for the year then ended, the statement of changes in net assets, and
the financial highlights (see pages 2 and 17 of the prospectus) for the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1993, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pennsylvania Municipal Cash Trust, an investment portfolio of Federated
Municipal Trust, as of October 31, 1993, the results of its operations for the
year then ended, and the changes in its net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR
ANDERSEN & CO.
Pittsburgh, Pennsylvania
December 13, 1993
ADDRESSES
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<TABLE>
<S> <C> <C>
Pennsylvania Municipal Cash Trust
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
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Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
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Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
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Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
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</TABLE>
PENNSYLVANIA MUNICIPAL
CASH TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Non-Diversified Portfolio of
Federated Municipal Trust, an Open-End
Management Investment Company
December 31, 1993
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
9101005A-ISS 12/93)
PENNSYLVANIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH SERIES SHARES
INSTITUTIONAL SERVICE SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with
the respective prospectus of Cash Series Shares and Institutional
Service Shares of Pennsylvania Municipal Cash Trust (the "Fund") dated
December 31, 1993. This Statement is not a prospectus itself. To
receive a copy of either prospectus, write or call Federated Municipal
Trust.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1993
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
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GENERAL INFORMATION ABOUT THE FUND 1
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INVESTMENT OBJECTIVE AND POLICIES 1
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Acceptable Investments 1
When-Issued and Delayed Delivery Transactions 1
Temporary Investments 2
Investment Limitations 2
Pennsylvania Investment Risks 4
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
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Officers and Trustees 5
The Funds 7
Fund Ownership 7
Trustee Liability 8
INVESTMENT ADVISORY SERVICES 8
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Adviser to the Fund 8
Advisory Fees 8
ADMINISTRATIVE SERVICES 8
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BROKERAGE TRANSACTIONS 9
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PURCHASING SHARES 9
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Distribution Plan (Cash Series Shares) 9
Conversion to Federal Funds 9
DETERMINING NET ASSET VALUE 9
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Use of the Amortized Cost Method 10
REDEEMING SHARES 10
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Redemption in Kind 11
TAX STATUS 11
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The Fund's Tax Status 11
YIELD 11
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EFFECTIVE YIELD 11
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TAX-EQUIVALENT YIELD 12
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Tax Equivalency Table 12
PERFORMANCE COMPARISONS 12
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GENERAL INFORMATION ABOUT THE FUND
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The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was
established as a Massachusetts business trust under a Declaration of Trust dated
September 1, 1989.
Shares of the Fund are offered in two classes, known as Cash Series Shares and
Institutional Service Shares (individually and collectively referred to as
"Shares"). This Combined Statement of Additional Information relates to the
above-mentioned Shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
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The Fund's investment objective is to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the Commonwealth of
Pennsylvania consistent with stability of principal. The investment objective
cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of the
Commonwealth of Pennsylvania and of other states, territories and possessions of
the United States, including the District of Columbia, and any political
subdivision or financing authority of any of these, the income from which is, in
the opinion of qualified legal counsel, exempt from both federal regular income
tax and state income tax imposed upon non-corporate taxpayers.
When determining whether a Pennsylvania municipal security presents minimal
credit risks, the investment adviser considers the creditworthiness of the
issuer of the security, the issuer of a demand feature if the Fund has the
unconditional right to demand payment for the security, or the guarantor of
payment by either of those issuers.
If a security loses its rating or the security's rating is reduced below the
required minimum after the Fund purchased it, the Fund is not required to sell
the security. The investment adviser considers this event, however, in its
determination of whether the Fund should continue to hold the security in its
portfolio. If ratings made by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") change because of changes in those
organizations or in their rating systems, the Fund will try to use comparable
ratings as standards in accordance with the investment policies described in the
Fund's prospectuses.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests which represent undivided proportional interests in lease
payments by a governmental or non-profit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that
the participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they became
due. In the event of a default or failure of appropriation, unless the
participation interests are credit enhanced, it is unlikely that the
participants would be able to obtain an acceptable substitute source of
payment.
Under the criteria currently established by the Board of Trustees
("Trustees"), the Fund's investment adviser must consider the following
factors in determining the liquidity of municipal lease securities: (1)
the frequency of trades and quotes for the security; (2) the volatility
of quotations and trade prices for the security; (3) the number of
dealers willing to purchase or sell the security and the number of
potential purchasers;
(4) dealer undertakings to make a market in the security; (5) the nature
of the security and the nature of the marketplace trades; (6) the rating
of the security and the financial condition and prospects of the issuer
of the security; (7) such other factors as may be relevant to the Fund's
ability to dispose of the security; (8) whether the lease can be
terminated by the lessee; (9) the potential recovery, if any, from a sale
of the leased property upon termination of the lease; (10) the lessee's
general credit strength; (11) the likelihood that the lessee will
discontinue appropriating funding for the leased property because the
property is no longer deemed essential to its operations; and (12) any
credit enhancement or legal recourse provided upon an event of
nonappropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
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No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
The Fund may engage in these transactions to an extent that would cause the
segregation of an amount up to 20% of the total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in high quality temporary investments during times of
unusual market conditions for defensive purposes and to maintain liquidity.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale
to repurchase them at a mutually agreed upon time and price within one
year from the date of acquisition. The Fund or its custodian will take
possession of the securities subject to repurchase agreements and these
securities will be marked to market daily. To the extent that the
original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund will only enter
into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's
investment adviser to be creditworthy pursuant to guidelines established
by the Trustees.
From time to time, such as when suitable Pennsylvania municipal securities are
not available, the Fund may maintain a portion of its assets in cash. Any
portion of the Fund's assets maintained in cash will reduce the amount of assets
in Pennsylvania municipal securities and thereby reduce the Fund's yield.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for the
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money in amounts up to one-third of the value of its total assets,
including the amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings in excess of 5% of its total assets are
outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge.
DIVERSIFICATION OF INVESTMENTS
With regard to at least 50% of its total assets, no more than 5% of its
total assets are to be invested in the securities of a single issuer, and
no more than 25% of its total assets are to be invested in the securities
of a single issuer at the close of each quarter of each fiscal year.
Under this limitation, each governmental subdivision, including states,
territories, possessions of the United States, or their political
subdivisions, agencies, authorities, instrumentalities, or similar
entities, will be considered a separate issuer if its assets and revenues
are separate from those of the governmental body creating it and the
security is backed only by its own assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
nongovernmental issuer are considered to be issued solely by that issuer.
If, in the case of an industrial development bond or government-issued
security, a governmental or other entity guarantees the security, such
guarantee would be considered a separate security issued by the
guarantor, as well as the other issuer, subject to limited exclusions
allowed by the Investment Company Act of 1940.
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INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of 1933.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or nonpublicly issued Pennsylvania municipal securities or
temporary investments or enter into repurchase agreements, in accordance
with its investment objective, policies, and limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of
the value of its assets in cash or cash items (including instruments
issued by a U.S. branch of a domestic bank or savings and loan having
capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment), securities issued or guaranteed by the U.S.
government, its agencies, or instrumentalities, or instruments secured by
these money market instruments, such as repurchase agreements.
The above investment limitations cannot be changed without shareholder approval.
The Fund does not consider the issuance of separate classes of shares to involve
the issuance of "senior securities" within the meaning of the investment
limitation set forth above. The following limitations, however, may be changed
by the Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, reorganization or other
acquisition.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
industrial development bonds or other municipal securities where the
principal and interest are the responsibility of companies (or
guarantors, where applicable) with less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
DEALING IN PUTS AND CALLS
The Fund will not purchase or sell puts, calls, straddles, spreads, or
any combination of them, except that the Fund may purchase municipal
securities accompanied by agreements of sellers to repurchase them at the
Fund's option.
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs, or leases.
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INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of its net assets in securities
which are illiquid, including repurchase agreements providing for
settlement more than seven days after notice, certain restricted
securities not determined by the Trustees to be liquid, non-negotiable
fixed time deposits with maturities over seven days.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its net assets during the coming fiscal year.
PENNSYLVANIA INVESTMENT RISKS
The Fund invests in obligations of Pennsylvania (the "Commonwealth") issuers
which result in the Fund's performance being subject to risks associated with
the overall conditions present within the Commonwealth. The following
information is a brief summary of the prevailing economic conditions and a
general summary of the Commonwealth's financial condition. This information is
based on official statements relating to securities that are believed to be
reliable but should not be considered as a complete description of all relevant
information.
The Commonwealth has experienced revenue shortfalls as a result of the recent
recession. Financially, the Commonwealth incurred a $1.1 billion deficit in
1991. Fiscal operations improved in 1992, and, with the addition of increased
taxes, the deficit was nearly eliminated. During the fiscal year 1993,
Pennsylvania focused on expenditure reductions while revenues were stabilized.
In addition, due to the length and severity of the recent recession, several
municipalities have undergone severe financial stress and are vulnerable to
further economic cycles.
Historically, the Pennsylvania economy was largely composed of heavy industry
that was concentrated in steel production, coal, and railroads. The exposure to
these industries, especially the steel sector, has declined and the economy has
diversified into services and trade sectors. Presently, services and trade
compose over 50% of the economy. Unemployment in Pennsylvania over the past two
years has surpassed the national average, and population growth, as in many of
the industrial states, has been motionless.
The overall condition of the Commonwealth is further demonstrated by its debt
ratings. Pennsylvania maintains an A1 rating by Moody's that has been in effect
since 1986. Standard & Poor's has rated the State AA-since 1985.
The Fund's concentration in securities issued by the Commonwealth and its
political subdivisions provides a greater level of risk than a fund whose assets
are diversified across numerous states and municipal issuers. The ability of the
Commonwealth or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political, and demographic
conditions within the Commonwealth; and the underlying fiscal condition of the
Commonwealth, its counties, and its municipalities.
FEDERATED MUNICIPAL TRUST MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Management,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, Inc., and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH
NAME AND ADDRESS THE TRUST PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue\* Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer
and Director, Trustee, or Managing General Partner of the Funds;
formerly, Director, The Standard Fire Insurance Company. Mr.
Donahue is the father of J. Christopher Donahue, Vice President of
the Trust.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior
Wood/IPC Commercial Vice-President, John R. Wood and Associates, Inc., Realtors;
Department President, Northgate Village Development Corporation; General
John R. Wood and Partner or Trustee in private real estate ventures in Southwest
Associates, Inc., Realtors Florida; Director, Trustee or Managing General Partner of the
3255 Tamiami Trail North Funds; formerly, President, Naples Property Management, Inc.
Naples, FL
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker,
One PNC Plaza -- Inc.; Director, Trustee, or Managing General Partner of the Funds;
23rd Floor formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank
Pittsburgh, PA Corp. and Director, Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
571 Hayward Mill Road Director, Trustee, or Managing General Partner of the Funds;
Concord, MA formerly, Director, Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and
3471 Fifth Avenue Montefiore Hospitals; Clinical Professor of Medicine and Trustee,
Suite 1111 University of Pittsburgh; Director, Trustee, or Managing General
Pittsburgh, PA Partner of the Funds.
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
formerly, Counsel, Horizon Financial, F.A., Western Region.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee or Managing General Partner of the Funds;
Boston, MA formerly, President, State Street Bank and Trust Company and State
Street Boston Corporation and Trustee, Lahey Clinic Foundation,
Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare,
5916 Penn Mall Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee,
Pittsburgh, PA or Managing General Partner of the Funds; formerly, Vice Chairman,
Horizon Financial, F.A.
</TABLE>
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<TABLE>
<CAPTION>
POSITIONS WITH
NAME AND ADDRESS THE TRUST PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
<S> <C> <C>
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee,
1202 Cathedral of Carnegie Endowment for International Peace, RAND Corporation,
Learning Online Computer Library Center, Inc., and U.S. Space Foundation;
University of Pittsburgh Chairman, Czecho Slovak Management Center; Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; formerly, Chairman, National
Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or
4905 Bayard Street Managing General Partner of the Funds.
Pittsburgh, PA
Glen R. Johnson* President Trustee, Federated Investors; President and/or Trustee of some of
Federated Investors Tower and Trustee the Funds; staff member, Federated Securities Corp. and Federated
Pittsburgh, PA Administrative Services, Inc.
J. Christopher Donahue* Vice President President and Trustee, Federated Investors; Trustee, Federated
Federated Investors Tower Advisers, Federated Management, and Federated Research; Trustee,
Pittsburgh, PA Federated Services Company; President and Director, Federated
Administrative Services, Inc.; Trustee, Federated Services
Company; President or Vice President of the Funds; Director,
Trustee or Managing General Partner of some of the Funds. Mr.
Donahue is the son of John F. Donahue, Chairman and Trustee of the
Trust.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors;
Federated Investors Tower Chairman and Director, Federated Securities Corp.; President or
Pittsburgh, PA Vice President of the Funds; Director or Trustee of some of the
Funds.
Edward C. Gonzales Vice President Vice President, Treasurer and Trustee, Federated Investors; Vice
Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management,
Pittsburgh, PA and Federated Research; Trustee, Federated Services Company;
Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Chairman, Treasurer, and Director, Federated
Administrative Services, Inc.; Trustee or Director of some of the
Funds; Vice President and Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors Tower and Secretary Investors; Vice President, Secretary and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Trustee,
Federated Services Company; Executive Vice President, Secretary,
and Director, Federated Administrative Services, Inc.; Director
and Executive Vice President, Federated Securities Corp.; Vice
President and Secretary of the Funds.
</TABLE>
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<TABLE>
<CAPTION>
POSITIONS WITH
NAME AND ADDRESS THE TRUST PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
<S> <C> <C>
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower President, Federated Securities Corp.; President and Trustee,
Pittsburgh, PA Federated Advisers, Federated Management, and Federated Research;
Vice President of the Funds; Director, Trustee, or Managing
General Partner of some of the Funds; formerly, Vice President,
The Standard Fire Insurance Company and President of its Federated
Research Division.
</TABLE>
*This Trustee is deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940, as amended.
\Member of the Trust's Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series,
Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT
Series Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield
Trust; Federated Income Securities Trust, Inc.; Federated Income Trust;
Federated Index Trust; Federated Intermediate Government Trust; Federated Master
Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated
Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed
Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Intermediate Municipal Trust; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund,
Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust, Inc.-1999;
Liberty U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid
Cash Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New
York Municipal Cash Trust; 111 Corcoran Funds; The Passageway Funds; The
Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds;
Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Fund;
Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term
U.S. Government Securities; and Trust for U.S. Treasury Obligations.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding Shares.
As of November 29, 1993, the following shareholders of record owned 5% or more
of the outstanding Cash Series Shares of the Fund: Albert Berman, Glen Mills,
Pennsylvania, owned approximately 1,158,652 shares (5.43%); Urban Redevelopment
DCA Grant, Pittsburgh, Pennsylvania, owned approximately 1,287,367 shares
(6.03%); Stephen Berman, Newton Square, Pennsylvania, owned approximately
1,330,730 shares (6.24%); Estate of Sidney Berman, Lansdowne, Pennsylvania,
owned approximatley 2,315,780 shares (10.85%); and BHC Securities, Incorporated,
Philadelphia, Pennsylvania, owned approximately 10,087,196 shares (47.28%).
As of November 29, 1993, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of the Fund: Mellon Bank Capital
Markets, Pittsburgh, Pennsylvania, owned approximately 16,422,834 shares
(5.07%); Spruce Co--ACM, Scranton, Pennsylvania, owned approximately 16,465,377
shares (5.08%); Bow & Co., Wilkes-Barre, Pennsylvania, owned approximately
16,799,701 shares (5.18%); PNC Securities Corp., Pittsburgh, Pennsylvania, owned
approximately 22,001,283 shares (6.79%); Anderson & Co., Philadelphia,
Pennsylvania, owned approximately 53,350,907 shares (16.46%); and ACO,
Pittsburgh, Pennsylvania, owned approximately 61,725,055 shares (19.04%).
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
- --------------------------------------------------------------------------------
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All of the Class A (voting) shares of Federated Investors
are owned by a trust, the trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue. John F. Donahue is Chairman and Trustee,
Federated Management; Chairman and Trustee, Federated Investors; and Chairman
and Trustee of the Trust. John A. Staley, IV, is President and Trustee,
Federated Management; Vice President and Trustee, Federated Investors; Executive
Vice President, Federated Securities Corp.; and Vice President of the Trust. J.
Christopher Donahue is Trustee, Federated Management; President and Trustee,
Federated Investors; President and Director, Federated Administrative Services,
Inc.; and Vice President of the Trust. John W. McGonigle is Vice President,
Secretary, and Trustee, Federated Management; Trustee, Vice President, Secretary
and General Counsel, Federated Investors; Executive Vice President, Secretary,
and Director, Federated Administrative Services, Inc.; Director and Executive
Vice President, Federated Securities Corp.; and Vice President and Secretary of
the Trust.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
October 31, 1993, 1992 and 1991, the Fund's adviser earned $1,740,351,
$1,718,171, and $1,722,277, respectively, of which $415,874, $415,265, and
$362,580, respectively, were voluntarily waived, because of undertakings to
limit the Fund's expenses.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
These arrangements are not part of the advisory contract and have been
established only to comply with applicable state authorities. They may be
amended or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund at approximate cost.
For the fiscal years ended October 31, 1993, 1992, and 1991, the Fund incurred
costs for administrative services of $338,801, $293,498, and $272,253,
respectively. John A. Staley, IV, an officer of the Trust, and Dr. Henry J.
Gailliot, an officer of Federated Management, the adviser to the Fund, each hold
approximately 15% and 20%, respectively, of the outstanding common stock and
serve as directors of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services, Inc. For the
years ended October 31, 1993, 1992, and 1991, Federated Administrative Services,
Inc. paid approximately $165,431, $189,741, and $187,677, respectively, for
services provided by Commercial Data Services, Inc.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the investment adviser will generally use those
who are recognized dealers in specific portfolio instruments, except when a
better price and execution of the order can be obtained elsewhere. The adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve wire system are open for business.
The procedure for purchasing Shares is explained in the respective prospectus
under "Investing in Cash Series Shares" and "Investing in Institutional Service
Shares."
DISTRIBUTION PLAN (CASH SERIES SHARES)
With respect to the Cash Series Shares class of the Fund, the Trust has adopted
a Plan pursuant to Rule 12b-1 which was promulgated by the Securities and
Exchange Commission under the Investment Company Act of 1940. The Plan provides
for payment of fees to Federated Securities Corp. to finance any activity which
is principally intended to result in the sale of the Fund's Shares subject to
the Plan. Such activities may include the advertising and marketing of Shares;
preparing, printing and distributing prospectuses and sales literature to
prospective shareholders, brokers or administrators; and implementing and
operating the Plan. Pursuant to the Plan, the distributor may pay fees to
brokers for distribution and administrative services and to administrators for
administrative services as to Shares. The administrative services are provided
by a representative who has knowledge of the shareholder's particular
circumstances and goals, and include, but are not limited to: communicating
account openings; communicating account closings; entering purchase
transactions; entering redemption transactions; providing or arranging to
provide accounting support for all transactions, wiring funds and receiving
funds for Share purchases and redemptions, confirming and reconciling all
transactions; reviewing the activity in Fund accounts; providing training and
supervision of broker personnel; posting and reinvesting dividends to Fund
accounts or arranging for this service to be performed by the Fund's transfer
agent; and maintaining and distributing current copies of prospectuses and
shareholder reports to the beneficial owners of Shares and prospective
shareholders. The Board of Trustees expects that the adoption of the Plan will
result in the sale of a sufficient number of Shares so as to allow the Fund to
achieve economic viability. It is also anticipated that an increase in the size
of the Fund will facilitate more efficient portfolio management and assist the
Fund in seeking to achieve its investment objective.
For the fiscal years ended October 31, 1993 and 1992, brokers and administrators
(financial institutions) earned fees in the amount of $91,235 and $84,459,
respectively, none of which was waived, pursuant to the distribution plan.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. State Street Bank and Trust
Company acts as the shareholder's agent in depositing checks and converting them
to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a Share at $1.00. The days on which
net asset value is calculated by the Fund are described in the respective
prospectus.
- --------------------------------------------------------------------------------
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7, as amended (the
"Rule"), promulgated by the Securities and Exchange Commission under the
Investment Company Act of 1940. Under the Rule, the Trustees must establish
procedures reasonably designed to stabilize the net asset value per share, as
computed for purposes of distribution and redemption, at $1.00 per share, taking
into account current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party (1) on no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same-day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
Although demand features and standby commitments are techniques and are defined
as "puts" under the Rule, the Fund does not consider them to be "puts" as that
term is used in the Fund's investment limitations. Demand features and standby
commitments are features which enhance an instrument's liquidity, and the
investment limitation which proscribes puts is designed to prohibit the purchase
and sale of put and call options and is not designed to prohibit the Fund from
using techniques which enhance the liquidity of portfolio instruments.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
.5% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risk and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than 397 days can be
purchased by the Fund. For a discussion of the treatment of variable rate
municipal securities with demand features, refer to "Variable Rate Demand
Notes" in the prospectus.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on Shares of
the Fund, computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above, may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on Shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
respective prospectus under "Redeeming Cash Series Shares" and "Redeeming
Institutional Service Shares." Although State Street Bank does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
- --------------------------------------------------------------------------------
REDEMPTION IN KIND
Although the Trust intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective Fund's portfolio. To the extent
available, such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem Shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net asset
value of the respective class during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for Cash Series Shares for the seven-day period ended October
31, 1993 was 1.68%. The yield for Institutional Service Shares was 2.08% for the
same period.
The Fund calculates the yield daily for both classes of shares, based upon the
seven-days ending on the day of calculation, called the "base period." This
yield is computed by:
determining the net change in the value of a hypothetical account with a balance
of one share at the beginning of the base period, with the net change excluding
capital changes but including the value of any additional shares purchased with
dividends earned from the original one share and (on funds that pay dividends
daily) all dividends declared on the original and any purchased shares;
dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
conjunction with an investment in either class of shares, the performance will
be reduced for shareholders paying those fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Fund's effective yield for Cash Series Shares for the seven-day period ended
October 31, 1993 was 1.69%. The effective yield for Institutional Service Shares
was 2.10% for the same period.
The Fund's effective yield for both classes of Shares is computed by compounding
the unannualized base period return by:
adding 1 to the base period return;
raising the sum to the 365/7th power; and
subtracting 1 from the result.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The Fund's tax-equivalent yield for Cash Series Shares for the seven-day period
ended October 31, 1993 was 2.43%. The tax-equivalent yield for Institutional
Service Shares was 3.01% for the same period.
The tax-equivalent yield for both classes of Shares is calculated similarly to
the yield, but reflect the taxable yield that either class of Shares would have
had to earn to equal actual yield, assuming a 28% federal tax rate and 2.8%
regular personal income tax rate imposed by Pennsylvania and assuming that
income earned by the Fund is 100% tax-exempt on a regular federal, state, and
local basis.
TAX-EQUIVALENCY TABLE
Both classes of Shares may also use a tax-equivalency table in advertising and
sales literature. The interest earned by the municipal securities in the Fund's
portfolio generally remains free from federal regular income tax, and is often
free from the regular personal income tax imposed by Pennsylvania*. As the table
below indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between "tax-free" and taxable yields.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1993
COMMONWEALTH OF PENNSYLVANIA
- -----------------------------------------------------------------------------
COMBINED FEDERAL AND STATE INCOME TAX BRACKET
17.80% 30.80% 33.80% 38.80% 42.40%
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JOINT $1- $36,901- $89,151- $140,001- OVER
RETURN: 36,900 89,150 140,000 250,000 $ 250,000
SINGLE $1- $22,001- $53,501- $115,001- OVER
RETURN: 22,100 53,500 115,000 250,000 $ 250,000
- -----------------------------------------------------------------------------
<CAPTION>
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes
paid on comparable taxable investments were not used to increase federal
deductions.
The above chart is for illustrative purposes only. It is not an indicator of
past or future performance of either class of Shares.
*Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local regular or alternative minimum taxes.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of both classes of Shares depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates on money market instruments;
changes in the Fund's or either class of Share's expenses; and
the relative amount of Fund cash flow.
From time to time, the Fund may advertise the performance of both classes of
Shares compared to similar funds or portfolios using certain indices, reporting
services, and financial publications. These may include the following:
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
- --------------------------------------------------------------------------------
From time to time, the Fund will quote its Lipper ranking in the "money market
funds" category in advertising and sales literature.
Investors may use such an index in addition to the prospectus of either class of
Shares to obtain a more complete view of the performance of that class before
investing. Of course, when comparing the performance of either class of Shares
to any index, factors such as composition of the index and prevailing market
conditions should be considered in assessing the significance of such
comparisons.
When comparing funds using reporting services, or total return and yield,
investors should take into consideration any relevant differences in funds such
as permitted portfolio composition and methods used to value portfolio
securities and compute offering price.
Advertisements and other sales literature for both classes of Shares may refer
to total return. Total return is the historic change in the value of an
investment in either class of Shares based on the monthly reinvestment of
dividends over a specified period of time.
9101005B(12/93)
MASSACHUSETTS MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Massachusetts Municipal Cash Trust (the
"Fund") offered by this prospectus represent interests in a non-diversified
portfolio of securities which is one of a series of investment portfolios in
Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund). The investment objective of the Fund is to provide
current income exempt from federal regular income tax, and Massachusetts state
income tax consistent with stability of principal. The Fund invests primarily in
short-term Massachusetts municipal securities, including securities of states,
territories, and possessions of the United States, which are not issued by or on
behalf of Massachusetts or its political subdivisions and financing authorities,
which are exempt from the federal regular and Massachusetts state income tax.
Institutional Service Shares are sold at net asset value, without a sales load.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THE INSTITUTIONAL SERVICE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in Institutional Service Shares. Keep this prospectus for future
reference.
The Fund has also filed a Statement of Additional Information for Institutional
Service Shares dated December 31, 1993, with the Securities and Exchange
Commission. The information contained in the Statement of Additional Information
is incorporated by reference into this prospectus. You may request a copy of the
Statement of Additional Information free of charge by calling 1-800-235-4669. To
obtain other information or to make inquiries about the Fund, contact the Fund
at the address listed at the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 31, 1993
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Variable Rate Demand Notes 4
Participation Interests 4
Municipal Leases 4
Ratings 4
Credit Enhancement 5
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed
Delivery Transactions 5
Temporary Investments 5
Massachusetts Municipal Securities 6
Standby Commitments 6
Massachusetts Investment Risks 6
Non-Diversification 7
Investment Limitations 7
Regulatory Compliance 7
FEDERATED MUNICIPAL TRUST INFORMATION 8
- ------------------------------------------------------
Management of Federated Municipal
Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Institutional
Service Shares 9
Administrative Arrangements 9
Administration of the Fund 9
Administrative Services 9
Custodian 9
Transfer Agent and Dividend
Disbursing Agent 9
Legal Counsel 9
Independent Public Accountants 9
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SERVICE SHARES 10
- ------------------------------------------------------
Share Purchases 10
By Wire 10
By Mail 10
Minimum Investment Required 10
What Shares Cost 11
Subaccounting Services 11
Certificates and Confirmations 11
Dividends 11
Capital Gains 11
REDEEMING INSTITUTIONAL SERVICE SHARES 12
- ------------------------------------------------------
Telephone Redemption 12
Written Requests 12
Signatures 12
Receiving Payment 13
Checkwriting 13
Redemption Before Purchase
Instruments Clear 13
Accounts with Low Balances 13
SHAREHOLDER INFORMATION 13
- ------------------------------------------------------
Voting Rights 13
Massachusetts Partnership Law 14
TAX INFORMATION 14
- ------------------------------------------------------
Federal Income Tax 14
Massachusetts Tax Considerations 15
Other State and Local Taxes 15
PERFORMANCE INFORMATION 15
- ------------------------------------------------------
OTHER CLASSES OF SHARES 16
- ------------------------------------------------------
Financial Highlights--BayFunds Shares 17
FINANCIAL STATEMENTS 18
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 33
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................. None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).................. None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)................................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable)...................................... None
Exchange Fee............................................................................................ None
ANNUAL INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)....................................................................... 0.10%
12b-1 Fee............................................................................................... None
Other Expenses.......................................................................................... 0.45%
Total Institutional Service Shares Operating Expenses (2)...................................... 0.55%
</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
0.50%.
(2) The Total Institutional Service Shares Operating Expenses in the table above
are based on expenses expected during the fiscal year ending October 31,
1994. The Total Institutional Service Shares Operating Expenses were 0.53%
for the fiscal year ended October 31, 1993 and were 0.96% absent the
voluntary waiver of a portion of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF
THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE
DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL
SERVICE SHARES" AND "FEDERATED MUNICIPAL TRUST INFORMATION." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<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. As
noted in the table above, the Fund charges no redemption fee for
Institutional Service Shares............................................. $6 $18 $31 $69
</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.
The information set forth in the foregoing table and example relates only to
Institutional Service Shares of the Fund. The Fund also offers another class of
shares called BayFunds Shares. Institutional Service Shares and BayFunds Shares
are subject to certain of the same expenses; however, BayFunds Shares are
subject to a Shareholder Servicing Fee of up to 0.25% and a Sub-Transfer Agent
Fee. Certain expenses are allocated as incurred by each class. These expenses
are greater for BayFunds Shares than for Institutional Service Shares. All other
expenses are allocated based upon the average daily net assets of each Class.
See "Other Classes of Shares."
MASSACHUSETTS MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 33.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C>
1993 1992 1991 1990*
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------
Net investment income 0.02 0.03 0.05 0.03
- ---------------------------------------------------------------------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.03) (0.05) (0.03)
- ---------------------------------------------------------------------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------- --------- --------- --------- ---------
TOTAL RETURN** 1.99% 2.87% 4.63% 2.59%(a)
- ----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------
Expenses 0.53% 0.34% 0.30% 0.17%(b)
- ----------------------------------------------------------------------
Net investment income 1.97% 2.82% 4.48% 5.66%(b)
- ----------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.43% 0.55% 0.69% 0.57%(b)
- ----------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------
Net assets, end of period (000 omitted) $84,524 $85,570 $81,681 $63,483
- ----------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 18, 1990 (date of initial public
investment) to October 31, 1990.
** Based on net asset value which does not reflect sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Trustees ("Trustees") have established two classes of
shares, known as Institutional Service Shares and BayFunds Shares. This
prospectus relates only to Institutional Service Shares of the Fund.
Institutional Service Shares ("Shares") of the Fund are designed for the
investment of moneys held by financial institutions in an agency capacity. A
minimum initial investment of $25,000 over a 90-day period is required. The Fund
may not be a suitable investment for non-Massachusetts taxpayers or retirement
plans since it invests primarily in Massachusetts municipal securities.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal regular income tax, and Massachusetts state income tax consistent with
stability of principal. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the investment
policies described in this prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than Massachusetts.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of Massachusetts municipal securities with remaining maturities of 13 months or
less at the time of purchase by the Fund. As a matter of investment policy,
which cannot be changed without approval of shareholders, the Fund invests its
assets so that at least 80% of its annual interest income is exempt from federal
regular income tax and Massachusetts state income tax. The average maturity of
the securities in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days or less. Unless indicated otherwise, the investment policies may
be changed by the Trustees without the approval of shareholders. Shareholders
will be notified before any material changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued
by or on behalf of Massachusetts and its political subdivisions and financing
authorities, and obligations of other states, territories and possessions of the
United States, including the District of Columbia, and any political subdivision
or financing authority of any of these, the income from which is, in the opinion
of qualified legal counsel, exempt from both federal regular income tax and
Massachusetts state income tax
imposed upon non-corporate taxpayers. Examples of Massachusetts municipal
securities include, but are not limited to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
participation, trust and partnership interests in any of the foregoing
obligations.
At least 80% of the value of the Fund's total assets will be invested in
Massachusetts municipal securities.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
municipal securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days' prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS. The Fund may purchase interests in municipal
securities from financial institutions such as commercial and investment
banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying municipal securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and may be considered to be illiquid. They may take the form
of a lease, an installment purchase contract, a conditional sales contract,
or a participation certificate on any of the above.
RATINGS. The Massachusetts municipal securities in which the Fund invests must
either be rated in one of the two highest short-term rating categories by one or
more nationally recognized statistical rating organizations ("NRSROs") or be of
comparable quality to securities having such ratings. An NRSRO's two highest
rating categories are determined without regard for sub-categories and
gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc.
("Moody's"), or FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service, Inc.
("Fitch") are all considered rated in one of the two highest short-term rating
categories. The Fund will follow applicable regulations in determining whether a
security rated by more than one NRSRO can be treated as being in one of the two
highest short-term rating categories; currently, such securities must be rated
by two NRSROs in one of their two highest categories. See "Regulatory
Compliance."
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit-enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit-enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
The Fund may have more than 25% of its total assets invested in securities
credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Trustees, certain restricted securities are considered
liquid. To the extent restricted securities are deemed to be illiquid, the Fund
will limit their purchase, together with other securities considered to be
illiquid, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
Massachusetts municipal securities on a when-issued or delayed delivery basis.
In when-issued and delayed delivery transactions, the Fund relies on the seller
to complete the transaction. The seller's failure to complete the transaction
may cause the Fund to miss a price or yield considered to be advantageous.
TEMPORARY INVESTMENTS. From time to time, during periods of other than normal
market conditions, the Fund may invest in short-term, tax-exempt or taxable,
temporary investments. All temporary investments will satisfy the same credit
quality standards as the Fund's acceptable investments. See "Ratings" above.
Temporary investments include: notes issued by or on behalf of municipal or
corporate issuers; marketable obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities; other debt securities; commercial
paper; certificates of deposit of banks; and repurchase agreements (arrangements
in which banks, broker/dealers, and other recognized financial institutions sell
the Fund a temporary investment and agree to repurchase it at a mutually agreed
upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax
or Massachusetts state income tax.
MASSACHUSETTS MUNICIPAL SECURITIES
Massachusetts municipal securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Massachusetts municipal securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire sites
or construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS
Some securities dealers are willing to sell municipal securities to the Fund
accompanied by their commitments to repurchase the municipal securities prior to
maturity, at the Fund's option, for the amortized cost of the municipal
securities at the time of repurchase. These arrangements are not used to protect
against changes in the market value of municipal securities. They permit the
Fund, however, to remain fully invested and still provide liquidity to satisfy
redemptions. The cost of municipal securities accompanied by these "standby"
commitments could be greater than the cost of municipal securities without such
commitments. Standby commitments are not marketable or otherwise assignable and
have value only to the Fund. The default or bankruptcy of a securities dealer
giving such a commitment would not affect the quality of the municipal
securities purchased. However, without a standby commitment, these securities
could be more difficult to sell. The Fund enters into standby commitments only
with those dealers whose credit the investment adviser believes to be of high
quality.
MASSACHUSETTS INVESTMENT RISKS
Yields on Massachusetts municipal securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the Commonwealth of Massachusetts
or its municipalities could impact the Fund's portfolio. The ability of the Fund
to achieve its investment objective also depends on the continuing ability of
the issuers of Massachusetts municipal securities and demand features for such
securities or the credit enhancers of either, to meet their obligations for the
payment of interest and principal when due.
Investing in Massachusetts municipal securities which meet the Fund's quality
standards may not be possible if the Commonwealth of Massachusetts or its
municipalities do not maintain their high quality, short-term current credit
ratings. In addition, certain Massachusetts constitutional amendments,
legislative measures, executive orders, administrative regulations and voter
initiatives could result in adverse consequences affecting Massachusetts
municipal securities. An expanded discussion of the current economic risks
associated with the purchase of Massachusetts municipal securities is contained
in the Statement of Additional Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified investment portfolio because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, with
regard to at least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 15% of the value of total assets to secure such
borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following investment limitation, however, can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective.
The Fund will not invest more than 5% of its total assets in industrial
development bonds or other municipal securities when the payment of principal
and interest is the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations, including the
operation of any predecessor.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. In particular, the Fund
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST INFORMATION
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MANAGEMENT OF FEDERATED MUNICIPAL TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of
Trustees is responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .50 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for the voluntary waiver of the advisory
fee by the adviser, the adviser may voluntarily waive some or all of the
advisory fee. This does not include reimbursement to the Fund of any
expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The adviser can terminate this voluntary waiver
of expenses at any time at its sole discretion. The adviser has also
undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the Trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATIVE ARRANGEMENTS. The distributor may select brokers and dealers to
provide distribution and administrative services. The distributor may also
select administrators (including depository institutions such as commercial
banks and savings and loan associations) to provide administrative
services. These administrative services include, but are not limited to,
distributing prospectuses and other information, providing accounting
assistance, and communicating or facilitating purchases and redemptions of
Shares.
Brokers, dealers, and administrators will receive fees from the distributor
based upon Shares owned by their clients or customers. The fees are calculated
as a percentage of the average aggregate net asset value of shareholder accounts
during the period for which the brokers, dealers, and administrators provide
services. Any fees paid for these services by the distributor will be reimbursed
by the adviser.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings and loan association) to become an underwriter or
distributor of securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Board of Trustees will consider appropriate changes in the administrative
services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary
of Federated Investors, provides the Fund with the administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services, Inc., provides these at approximate cost.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
NET ASSET VALUE
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The Fund attempts to stabilize the net asset value of its Shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per Share is determined by adding the interest of the Shares in the value
of all securities and other assets of the Fund, subtracting the interest of the
Shares in the liabilities of the Fund and those attributable to Shares, and
dividing the remainder by the total number of Shares outstanding.
The Fund, of course, cannot guarantee that its net asset value will always
remain at $1.00 per Share.
INVESTING IN INSTITUTIONAL SERVICE SHARES
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SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open for business. Shares may be purchased either by
wire or by mail. The Fund reserves the right to reject any purchase request.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) that same day. Federal funds should be wired as follows: State Street Bank
and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
Massachusetts Municipal Cash Trust--Institutional Service Shares; Fund Number
(this number can be found on the account statement or by contacting the Fund);
Group Number or Order Number; Nominee or Institution Name; and ABA Number
011000028. Shares cannot be purchased by wire on days on which the New York
Stock Exchange is closed and on federal holidays restricting wire transfers.
BY MAIL. To purchase Shares by mail, send a check made payable to Massachusetts
Municipal Cash Trust--Institutional Service Shares to the Trust's transfer
agent, Federated Services Company, c/o State Street Bank and Trust Company, P.O.
Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered
received when payment by check is converted by State Street Bank into federal
funds. This is normally the next business day after State Street Bank receives
the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Shares is $25,000. However, an account may
be opened with a smaller amount as long as the $25,000 minimum is reached within
90 days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund. Individual accounts
established through a bank or broker may be subject to a different minimum
investment requirement.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a bank or broker may be charged an additional service fee by that
bank or broker.
The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; or (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements.
The transfer agent charges a fee based on the level of subaccounting services
rendered. Financial institutions holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services provided which may be related to the ownership of
Shares. This prospectus should, therefore, be read together with any agreement
between the customer and the financial institution with regard to the services
provided, the fees charged for those services, and any restrictions and
limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the day after the check is converted, upon
instruction of the transfer agent, into federal funds. Dividends are
automatically reinvested on payment dates in additional Shares unless cash
payments are requested by contacting the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses,
if any, could result in a decrease in dividends. If, for some extraordinary
reason, the Fund realizes net long-term or short-term capital gains, it will
distribute them at least once every 12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
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The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund. Redemption
requests received before 12:00 noon (Eastern time) are not entitled to that
day's dividend. A daily dividend will be paid on Shares redeemed if the
redemption request is received after 12:00 noon (Eastern time). However, the
proceeds are not wired until the following business day. If, at any time, the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders will be promptly notified.
An authorization form permitting the Fund to accept redemption requests by
telephone must first be completed. Authorization forms and information on this
service are available from Federated Securities Corp.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, shareholders may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as Written Requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name and class of shares,
his account number, and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper,
written redemption request.
CHECKWRITING. At the shareholder's request, State Street Bank will establish a
checking account for redeeming Shares. For further information, contact
Federated Securities Corp.
A fee may be charged for this service. With a Fund checking account, Shares may
be redeemed simply by writing a check. The redemption will be made at the net
asset value on the date that State Street Bank presents the check to the Fund. A
check may not be written to close an account. If a shareholder wishes to redeem
Shares and have the proceeds available, a check may be written and negotiated
through the shareholder's bank. Checks should never be sent to State Street Bank
to redeem Shares. Cancelled checks are returned to the shareholder each month.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, the proceeds from the redemption of those
Shares are not available, and the Shares may not be exchanged, until the Fund or
its agents are is reasonably certain that the purchase check has cleared, which
could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
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VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of all series in the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for such
acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument that the
Trust or its Trustees enter into or sign.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
TAX INFORMATION
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FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, 75% of the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
MASSACHUSETTS TAX CONSIDERATIONS
Under existing Massachusetts law, dividends paid by the Fund will be exempt from
Massachusetts personal income tax if such dividends are directly attributable to
interest earned on (i) obligations issued by the Commonwealth of Massachusetts,
its political subdivisions or agencies; or (ii) obligations of the United
States, its territories or possessions to the extent exempt from taxation by the
states pursuant to federal law. Conversely, to the extent that the dividends
paid by the Fund are derived from other types of obligations, such dividends
will not be exempt from Massachusetts personal income tax.
Shareholders subject to the Massachusetts corporate excise tax must include all
dividends paid by the Fund in their net income, and the value of their shares of
stock in the Fund in their net worth, when computing the Massachusetts excise
tax.
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from regular state income taxes in
states other than Massachusetts or from personal property taxes. State laws
differ on this issue and shareholders are urged to consult their own tax
advisers regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield, effective yield, and
tax-equivalent yield for Institutional Service Shares.
The yield of Institutional Service Shares represents the annualized rate of
income earned on an investment in Institutional Service Shares over a seven-day
period. It is the annualized dividends earned during the period on the
investment, shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but, when annualized, the income earned by an
investment in Institutional Service Shares is assumed to be reinvested daily.
The effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. The tax-equivalent yield of
Institutional Service Shares is calculated similarly to the yield, but is
adjusted to reflect the taxable yield that the Institutional Service Shares
would have had to earn to equal their actual yield, assuming a specific tax
rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Institutional Service Shares after reinvesting all income
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
Yield, effective yield, and tax-equivalent yield will be calculated separately
for Institutional Service Shares and BayFunds Shares. Because BayFunds Shares
are subject to a shareholder servicing fee, the yield, the effective yield, and
the tax-equivalent yield for Institutional Service Shares will exceed the yield,
the effective yield, and the tax-equivalent yield for BayFunds Shares for the
same period.
From time to time, the Fund may advertise the performance of Institutional
Service Shares using certain reporting services and/or compare the performance
of Institutional Service Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
BayFunds Shares are sold primarily to retail customers of the banking
subsidiaries of BayBanks, Inc. BayFunds Shares are sold at net asset value.
Investments in BayFunds Shares are subject to a minimum initial investment of
$2,500.
The Distributor may pay a fee to a financial institution or broker for
shareholder services provided to the BayFunds Shares class, and may pay an
administrative fee to a financial institution or broker for
administrative services provided to the Institutional Service Shares class. Any
fee paid by the Distributor for administrative services will not be an expense
of either class, but will be reimbursed to the distributor by the investment
adviser.
The amount of dividends payable to Institutional Service Shares will exceed the
amount of dividends payable to BayFunds Shares by an amount equal to the
shareholder services and sub-transfer agent fees allocated to the BayFunds
Shares.
The stated advisory fee is the same for both classes of the Fund.
MASSACHUSETTS MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--BAYFUNDS SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on page 33.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1993*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- ------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------
Net investment income 0.01
-------
- ------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.01)
-------
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00
-------
- ------------------------------------------------------------------------------------------------
TOTAL RETURN** 1.25%(a)
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------
Expenses 0.65%(b)
- ------------------------------------------------------------------------------------------------
Net investment income 1.85%(b)
- ------------------------------------------------------------------------------------------------
Expense waiver/reimbursement(c) 0.43%(b)
- ------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $18,143
- ------------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from March 8, 1993 (date of initial public
investment) to October 31, 1993.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- -------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--99.5%
- -----------------------------------------------------------------------------------
MASSACHUSETTS--88.2%
--------------------------------------------------------------------
$ 2,000,000 Boston, MA, 2.75% Certificates of Participation (Fleet
National Bank LOC), 4/1/94 P-1 $ 2,000,000
--------------------------------------------------------------------
3,900,000 Boston, MA, Water & Sewer Commission Weekly VRDNs (Series
1985A)/(Dai-Ichi Kangyo Bank Ltd. LOC) VMIG1 3,900,000
--------------------------------------------------------------------
1,860,000 Chelmsford, MA, 2.75% RANs, 2/18/94 NR(3) 1,860,534
--------------------------------------------------------------------
1,000,000 Commonwealth of Massachusetts Dedicated Income Tax Daily VRDNs
(Series B)/(National Westminster Bank PLC LOC) A-1+ 1,000,000
--------------------------------------------------------------------
1,500,000 Dighton-Rehoboth, MA, Regional School District, 2.65% RANs, 11/24/93 NR 1,500,045
--------------------------------------------------------------------
1,265,000 Fairhaven, MA, 2.98% RANs, 1/7/94 NR(3) 1,265,404
--------------------------------------------------------------------
3,200,000 Framingham, MA, IDA Weekly VRDNs (Perin Corp.)/
(Barclays Bank PLC LOC) A-1+ 3,200,000
--------------------------------------------------------------------
1,615,082 Greenfield, MA, 2.45% BANs, 12/1/93 NR(3) 1,615,146
--------------------------------------------------------------------
650,000 Ludlow, MA, Weekly VRDNs (Advanced Drainage Systems, Inc.)/(FNB,
Chicago LOC) P-1 650,000
--------------------------------------------------------------------
1,800,000 Massachusetts Municipal Wholesale Electric Company VRDCs Trust,
Weekly VRDNs (Series 1993D)/(AMBAC
Insured, Hong Kong Shanghai Banking Corp. BPA) A-1 1,800,000
--------------------------------------------------------------------
4,000,000 Massachusetts Bay Transit Authority, 2.85% Semi-Annual TOBs (Long
Term Credit Bank of Japan Ltd. LOC), 3/1/94 A-1 4,000,000
--------------------------------------------------------------------
2,000,000 Massachusetts Commonwealth Weekly VRDNs GO Bonds (Series PA13)/(MBIA
and FGIC Insured) VMIG1 2,000,000
--------------------------------------------------------------------
</TABLE>
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- -------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
MASSACHUSETTS--CONTINUED
--------------------------------------------------------------------
$ 7,480,000 Massachusetts HEFA Weekly VRDNs (Harvard University Guaranty) A-1+ $ 7,480,000
--------------------------------------------------------------------
3,400,000 Massachusetts HEFA Weekly VRDNs (Berkshire Consolidated
Realty)/(Banque Paribas LOC) A-1 3,400,000
--------------------------------------------------------------------
1,940,000 Massachusetts HEFA Weekly VRDNs (Newbury College)/ (Barclays Bank
PLC LOC) P-1 1,940,000
--------------------------------------------------------------------
200,000 Massachusetts HEFA Weekly VRDNs (Series A)/(Brigham & Women's
Hospital)/(Sanwa Bank Ltd. LOC) P-1 200,000
--------------------------------------------------------------------
1,500,000 Massachusetts HEFA Weekly VRDNs (Series B)/(Clark
University)/(Sanwa Bank Ltd. LOC) VMIG1 1,500,000
--------------------------------------------------------------------
4,600,000 Massachusetts HEFA Weekly VRDNs (Series E)/(Capital Asset
Program)/(Sanwa Bank Ltd. LOC) A-1+ 4,600,000
--------------------------------------------------------------------
3,700,000 Massachusetts HEFA Weekly VRDNs (Series F)/(Boston College)/(Sanwa
Bank Ltd. LOC) VMIG1 3,700,000
--------------------------------------------------------------------
2,500,000 Massachusetts HEFA Weekly VRDNs (Series G)/(Massachusetts Institute
of Technology Guaranty) NR(1) 2,500,000
--------------------------------------------------------------------
7,500,000 Massachusetts HEFA, 2.60% CP, (Series E)/(Tufts University
Guaranty), Mandatory Tender 12/14/93 A-1+ 7,500,000
--------------------------------------------------------------------
1,500,000 Massachusetts HEFA, 2.85% Serial Bond (Series E)/
(Brigham & Women's Hospital Guaranty), 7/1/94 NR(2) 1,500,000
--------------------------------------------------------------------
600,000 Massachusetts HEFA, 2.90% Serial Bond (Morton Hospital & Medical
Center)/(Connie Lee Insured), 7/1/94 NR(1) 599,604
--------------------------------------------------------------------
1,000,000 Massachusetts HFA SFH, 2.95% Annual TOBs (Series 25)/ (Bayerische
Landesbank LOC), Mandatory Tender 9/1/94 A-1+ 1,000,000
--------------------------------------------------------------------
2,000,000 Massachusetts IDA Weekly VRDNs (Williston Northampton
School)/(National Westminster Bank PLC LOC) P-1 2,000,000
--------------------------------------------------------------------
</TABLE>
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- -------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
MASSACHUSETTS--CONTINUED
--------------------------------------------------------------------
$ 300,000 Massachusetts IFA PCR Weekly VRDNs (Series 1992A)/ (Holyoke Water
Power Co.)/(Canadian Imperial Bank of Commerce LOC) VMIG1 $ 300,000
--------------------------------------------------------------------
4,000,000 Massachusetts IFA PCR, 2.65% CP (Series A)/
(New England Power Company Guaranty), Mandatory Tender 1/11/94 A-1 4,000,000
--------------------------------------------------------------------
1,000,000 Massachusetts IFA Weekly VRDNs (Berkshire School)/
(National Westminster Bank PLC LOC) VMIG1 1,000,000
--------------------------------------------------------------------
5,525,000 Massachusetts IFA Weekly VRDNs (Kendall Square, Inc.)/ (National
Westminster Bank PLC LOC) P-1 5,525,000
--------------------------------------------------------------------
4,000,000 Massachusetts IFA Weekly VRDNs (Series 1992A)/(Ogden
Haverhill)/(Union Bank of Switzerland LOC) VMIG1 4,000,000
--------------------------------------------------------------------
2,000,000 Massachusetts IFA Weekly VRDNs (Series 1993B)/(New England Deaconess
Association)/(Banque Paribas LOC) A-1 2,000,000
--------------------------------------------------------------------
925,000 Massachusetts IFA Weekly VRDNs (Series A)/(Hockomock YMCA)/(Westpac
Banking Corp. LOC) P-1 925,000
--------------------------------------------------------------------
1,700,000 New Bedford, MA, 3.40% RANs (Fleet National Bank BPA), 1/14/94 P-1 1,702,716
--------------------------------------------------------------------
2,000,000 New Bedford, MA, 4.75% BANs (Fleet National Bank BPA), 11/12/93 P-1 2,000,787
--------------------------------------------------------------------
3,330,000 North Andover, MA, 3.00% BANs, 6/29/94 NR 3,335,321
--------------------------------------------------------------------
1,923,000 Northampton, MA, 2.47% BANs, 6/29/94 NR 1,923,862
--------------------------------------------------------------------
1,080,000 Norwood, MA, IDRB, 3.125% Annual TOBs (Dash Realty Trust)/(Fleet
National Bank LOC), Mandatory Tender
7/1/94 SP-1 1,080,000
-------------------------------------------------------------------- ---------------
Total 90,503,419
-------------------------------------------------------------------- ---------------
</TABLE>
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- -------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
PUERTO RICO--11.4%
--------------------------------------------------------------------
$ 5,400,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit
Suisse and Sumitomo Bank Ltd. LOCs) A-1+ $ 5,400,000
--------------------------------------------------------------------
4,000,000 Puerto Rico Industrial Medical and Environmental Pollution
Authority, 2.70% Annual TOBs (Abbott Laboratories, Inc. Guaranty),
3/1/94 NR(1) 4,000,000
--------------------------------------------------------------------
2,290,000 Puerto Rico Industrial, Medical and Environmental PCA, 2.90% Annual
TOBs (Series 1983A)/(Reynolds Metals Co.)/(ABN AMRO Bank N.V. LOC),
Optional Tender 9/1/94 A-1+ 2,291,850
-------------------------------------------------------------------- ---------------
Total 11,691,850
-------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS, (AT AMORTIZED COST) $ 102,195,269\
-------------------------------------------------------------------- ---------------
</TABLE>
* See Notes to Portfolio of Investments.
\ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($102,667,192) at October
31, 1993.
The following abbreviations may be used in this portfolio:
AMBAC--American Municipal Bond
Assurance Corporation
BANs--Bond Anticipation Notes
BPA--Bond Purchase Agreement
CP--Commercial Paper
FGIC--Financial Guaranty Insurance Company
GO--General Obligation
HEFA--Health and Education Facilities
Authority
HFA--Housing Finance Authority/Agency
IDA--Industrial Development Authority
IDRB--Industrial Development Revenue Bonds
IFA--Industrial Finance Authority/Agency
LOC--Letter of Credit
LOCs--Letters of Credit
MBIA--Municipal Bond Investors Assurance
PCA--Pollution Control Authority
PCR--Pollution Control Revenue
RANs--Revenue Anticipation Notes
SFH--Single Family Housing
TOBs--Tender Option Bonds
VRDCs--Variable Rate Demand Certificates
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
S&P
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S
Moody's short-term ratings are designated Moody's Investment Grade (MIG or VMIG
(see below)). The purpose of the MIG of VMIG ratings is to provide investors
with a simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
FITCH
Fitch's short-term ratings place greater emphasis on the existence of liquidity
necessary to meet the issuer's obligations in a timely manner.
F-1 Strongest degree of assurance for timely payment. Those issues determined to
provide exceptionally strong credit quality are given a plus (+)
designation.
F-2 Notes reflecting a degree of assurance for timely payment only slightly less
in degree than the highest category.
VARIABLE RATE DEMAND NOTES (VRDNS)
AND
TENDER OPTION BONDS (TOBS)
RATINGS
S&P
Standard & Poor's assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
characteristics. Several examples are AAA/A-1+, AA/A-1K, and A/A-1. (The
definitions for the long-term and the short-term ratings are provided below.)
MOODY'S
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity.
In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the
first representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the second representing an evaluation of
the degree of risk associated with the demand feature. The VMIG rating can be
assigned a 1 or 2 designation using the same definitions described above for the
MIG rating.
FITCH
Fitch usually assigns two ratings to long-term debt issues that include
provisions for a variable rate demand feature. The long-term rating addresses
the ability of the obligor to pay debt service and the short-term rating
addresses the timely payment of the demand feature. Examples of rating
designation are as follows: AAA/F-1+, AA/F-1K, and A/F-1. (The definitions for
the long-term and short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
S&P
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."
MOODY'S
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
The following is an explanation of the Fitch ratings. These ratings are not
referenced in the Portfolio of Investments.
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
FITCH
F-1 Issues assigned this rating reflect a stong degree of assurance for timely
payment. Those issuers determined to possess the strongest degree of
assurance for timely payment are denoted with a plus (+) sign designation.
F-2 Issuers carrying this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the "F-1+" and
"F-1" categories.
LONG-TERM DEBT RATINGS
(INVESTMENT GRADE)
S&P
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB Debt rated "BBB" is regarding as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
principal and interest than debt rated in higher ratings categories.
MOODY'S
Aaa Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large margin and principal
is secure. While the various protective elements are likely to change, such
changes which can be foreseen are most unlikely to impair the fundamentally
strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
adequate, but elements may be present that suggest a susceptibility to
impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
FITCH
AAA Bonds that are rated AAA are of the highest credit quality. The obligor has
an exceptionally strong ability to pay debt service.
AA Bonds that are rated AA are of very high quality. The obligor has a very
strong ability to pay debt service. Debt rated in this category may also
have a (+) or (-) sign with a rating to indicate the relative position
within the rating category.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to
be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and
therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
NR indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P, Moody's, or Fitch with respect to short-term
indebtedness. However, management considers them to be of comparable quality to
securities rated in one of the two highest short-term ratings categories by a
nationally recognized statistical ratings organization.
NR(1)The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by Fitch.
NR(2)The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch.
NR(3)The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "A" by Standard & Poor's, Moody's, or Fitch.
NR(4)The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by Fitch.
MASSACHUSETTS MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $ 102,195,269
- -------------------------------------------------------------------------------------------------
Cash 707,029
- -------------------------------------------------------------------------------------------------
Interest receivable 527,874
- -------------------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 5,931
- ------------------------------------------------------------------------------------------------- ---------------
Total assets 103,436,103
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------
Payable for investments purchased $ 602,891
- ------------------------------------------------------------------------------------
Dividends payable 117,456
- ------------------------------------------------------------------------------------
Accrued expenses and other liabilities 48,564
- ------------------------------------------------------------------------------------ -----------
Total liabilities 768,911
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSETS for 102,667,192 shares of beneficial interest outstanding $ 102,667,192
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- -------------------------------------------------------------------------------------------------
Institutional Service Shares ($84,524,347 / 84,524,347 shares of beneficial interest outstanding)
$1.00
- ------------------------------------------------------------------------------------------------- ---------------
BayFunds Shares ($18,142,845 / 18,142,845 shares of beneficial interest outstanding) $1.00
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 2,488,073
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 498,975
- --------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 253,380
- --------------------------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 87,177
- --------------------------------------------------------------------------------------
Trustees' fees 2,245
- --------------------------------------------------------------------------------------
Auditing fees 16,507
- --------------------------------------------------------------------------------------
Legal fees 12,985
- --------------------------------------------------------------------------------------
Printing and postage 30,065
- --------------------------------------------------------------------------------------
Fund share registration costs 41,287
- --------------------------------------------------------------------------------------
Insurance premiums 7,890
- --------------------------------------------------------------------------------------
Taxes 773
- --------------------------------------------------------------------------------------
Miscellaneous 5,961
- -------------------------------------------------------------------------------------- -----------
Total expenses 957,245
- --------------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 5) 427,232
- -------------------------------------------------------------------------------------- -----------
Net expenses 530,013
- --------------------------------------------------------------------------------------------------- -------------
Net investment income $ 1,958,060
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1993 1992
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------
Net investment income $ 1,958,060 $ 2,512,473
- ----------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -----------------------------------------------------------------------------
Institutional Service Shares (1,874,757) (2,512,460)
- -----------------------------------------------------------------------------
Cash Series Shares -- (13)
- -----------------------------------------------------------------------------
BayFunds Shares (83,303) --
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from distributions to shareholders (1,958,060) (2,512,473)
- ----------------------------------------------------------------------------- ---------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------
Proceeds from sale of shares 277,390,674 188,432,361
- -----------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 451,819 194,403
- -----------------------------------------------------------------------------
Cost of shares redeemed (260,744,847) (184,738,219)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from Fund share transactions 17,097,646 3,888,545
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets 17,097,646 3,888,545
- -----------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------
Beginning of period 85,569,546 81,681,001
- ----------------------------------------------------------------------------- ---------------- ----------------
End of period $ 102,667,192 $ 85,569,546
- ----------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company
with several portfolios. The financial statements included herein are only those
of Massachusetts Municipal Cash Trust (the "Fund"). The financial statements of
the other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
From December 31, 1990, until May 17, 1992 the Fund provided two classes of
shares ("Institutional Service Shares" and "Cash Series Shares"). Cash Series
Shares were identical in all respects to Institutional Service Shares except
that Cash Series Shares were sold pursuant to a distribution plan ("Plan")
adopted in accordance with Investment Company Act Rule 12b-1. Under the Plan,
the Fund paid Federated Securities Corp. (the "distributor") a fee at an annual
rate up to .40 of 1% of the average daily net asset value of Cash Series Shares
to finance any activity which was principally intended to result in the sale of
Cash Series Shares. As of May 17, 1992, the Plan was terminated by the Board of
Trustees ("Trustees") of the Trust. As a result of the termination of the Plan,
fee accruals under the Plan have been discontinued.
Effective March 8, 1993 (date of initial public offering), the Fund provided an
additional class of shares ("BayFunds Shares"). BayFunds Shares are identical in
all respects to Institutional Service Shares except that BayFunds Shares were
sold pursuant to a shareholder servicing fee of up to .25 of 1% of average daily
net assets of BayFunds Shares and a sub-transfer agent fee.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Trustees has determined that the best method
currently available for valuing portfolio securities is amortized cost. The
Fund's use of the amortized cost method to value its portfolio securities
is conditioned on its compliance with Rule 2a-7 under the Investment
Company Act of 1940.
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state, than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such
factors, at October 31, 1993, 85.1% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The
aggregate percentages by financial institution ranged from 0.3% to 9.8% of
total investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest earned net of premium, and original issue discount as
required by the Internal Revenue Code.
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code (the "Code") applicable to investment companies and
to distribute to shareholders each year all of its net income. Accordingly,
no provision for federal tax is necessary. Dividends paid by the Fund
representing net interest received on tax-exempt municipal securities are
not includable by shareholders as gross income for federal income tax
purposes because the Fund intends to meet certain requirements of the Code
applicable to regulated investment companies which will enable the Fund to
pay exempt-interest dividends. The portion of such interest, if any, earned
on private activity bonds issued after August 7, 1986 may be considered a
tax preference item to shareholders for the purpose of computing the
alternative minimum tax.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Fund
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objectives and policies
and not for the purpose of investment leverage. The Fund will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Fund will maintain security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
E. DEFERRED EXPENSES--Costs incurred by the Fund in connection with its
initial share registration, other than organization expenses, were deferred
and are being amortized on a straight-line basis through May 1995.
F. EXPENSES--Expenses of the Fund (other than shareholder servicing fees and
sub-transfer agent fees) and waivers and reimbursements, if any, are
allocated to each class of shares based on its relative daily average net
assets for the period. Expenses incurred by the Trust which do not
specifically relate to an individual Fund are allocated among all Funds
based on a Fund's relative net asset value size or as deemed appropriate by
the administrator.
G. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) DIVIDENDS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash, or in additional
shares at the net asset value on the payable date.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1993, capital paid-in aggregated $102,667,192.
Transactions in Fund shares were as follows:
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE SHARES YEAR ENDED OCTOBER 31,
1993 1992
<S> <C> <C>
Shares outstanding, beginning of period 85,569,546 81,680,650
- -----------------------------------------------------------------------------------
Shares sold 254,082,837 188,432,361
- -----------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 367,572 194,402
- -----------------------------------------------------------------------------------
Shares redeemed (255,495,608) (184,737,867)
- ----------------------------------------------------------------------------------- ---------------- ----------------
Shares outstanding, end of period 84,524,347 85,569,546
- ----------------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
CASH SERIES SHARES YEAR ENDED OCTOBER 31,
1993 1992
<S> <C> <C>
Shares outstanding, beginning of period -- 351
- --------------------------------------------------------------------------------------
Shares sold -- --
- --------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared -- 1
- --------------------------------------------------------------------------------------
Shares redeemed -- (352)
- -------------------------------------------------------------------------------------- ------------- -------------
Shares outstanding, end of period -- --
- -------------------------------------------------------------------------------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
BAYFUNDS SHARES YEAR ENDED OCTOBER 31,
1993 1992
<S> <C> <C>
Shares outstanding, beginning of period -- --
- --------------------------------------------------------------------------------------
Shares sold 23,307,837 --
- --------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 84,247 --
- --------------------------------------------------------------------------------------
Shares redeemed (5,249,239) --
- -------------------------------------------------------------------------------------- ------------- -------------
Shares outstanding, end of period 18,142,845 --
- -------------------------------------------------------------------------------------- ------------- -------------
</TABLE>
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Management, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to .50 of 1% of the Fund's
average daily net assets. Adviser has voluntarily agreed to waive a portion of
its fee. Adviser can modify or terminate this voluntary waiver of expense at any
time at its sole discretion. For the fiscal year ended October 31, 1993, the
investment advisory fee amounted to $498,975, of which $427,232 was waived in
accordance with such undertaking.
Organizational expenses ($44,840) and start-up administrative services expenses
($43,014) were borne initially by the Adviser. The Fund has agreed to pay the
Adviser, at an annual rate of .005 of 1% of average daily net assets and .01 of
1% of average daily net assets for organization expenses and start-up
administrative expenses, respectively, until the expenses borne initially by the
Adviser are reimbursed, or the expiration of five years from May 18, 1990, the
date the Trust's portfolio became effective, whichever
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
occurs earlier. During the fiscal year ended October 31, 1993, the Fund paid
Adviser $4,917 and $9,835, respectively, pursuant to this agreement.
During the fiscal year ended October 31, 1993, the Fund engaged in purchase and
sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7
of the Investment Company Act of 1940 amounting to $123,934,015 and
$129,750,000, respectively. These purchases and sales were conducted on an
arms-length basis insofar as they were transacted for cash consideration only,
at independent current market prices and without brokerage commission, fee or
other remuneration.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Certain Officers and Trustees of the
Trust are Officers and Directors of the above corporations.
(6) CURRENT CREDIT RATINGS
Current credit ratings and related notes are unaudited.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST (Massachusetts Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of
Massachusetts Municipal Cash Trust, (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio investments, as of October 31, 1993, the related statement of
operations for the year then ended, and the statement of changes in net assets,
and the financial highlights (see pages 2 and 17 the prospectus) for the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1993, by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Massachusetts Municipal Cash Trust, an investment portfolio of Federated
Municipal Trust, as of October 31, 1993, the results of its operations for the
year then ended, and the changes in its net assets and the financial highlights
for the periods presented in conformity with generally accepted accounting
principles.
ARTHUR
ANDERSEN & CO.
Pittsburgh, Pennsylvania
December 13, 1993
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Massachusetts Municipal Cash Trust
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
MASSACHUSETTS MUNICIPAL
CASH TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Non-Diversified Portfolio of
Federated Municipal Trust, an Open-End
Management Investment Company
December 31, 1993
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
0032603A-ISS (12/93)
MASSACHUSETTS MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus for Institutional Service Shares of Massachusetts Municipal
Cash Trust (the "Fund") dated December 31, 1993. This Statement is not
a prospectus itself. To receive a copy of the prospectus, write or
call Federated Municipal Trust.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1993
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Acceptable Investments 1
When-Issued and Delayed Delivery
Transactions 1
Temporary Investments 2
Investment Limitations 2
Massachusetts Investment Risks 4
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
- ---------------------------------------------------------------
Officers and Trustees 5
The Funds 7
Fund Ownership 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 7
- ---------------------------------------------------------------
Adviser to the Fund 7
Advisory Fees 8
ADMINISTRATIVE SERVICES 8
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 8
- ---------------------------------------------------------------
PURCHASING SHARES 9
- ---------------------------------------------------------------
Conversion to Federal Funds 9
DETERMINING NET ASSET VALUE 9
- ---------------------------------------------------------------
Use of the Amortized Cost Method 9
REDEEMING SHARES 10
- ---------------------------------------------------------------
Redemption in Kind 10
TAX STATUS 10
- ---------------------------------------------------------------
The Fund's Tax Status 10
Massachusetts State Income Tax 10
YIELD 11
- ---------------------------------------------------------------
EFFECTIVE YIELD 11
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 11
- ---------------------------------------------------------------
Tax-Equivalency Table 12
PERFORMANCE COMPARISONS 12
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was
established as a Massachusetts business trust under a Declaration of Trust dated
September 1, 1989.
Shares of the Fund are offered in two classes, known as Institutional Service
Shares ("Shares") and BayFunds Shares. This Statement of Additional Information
relates to the Institutional Service Shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income exempt from federal
regular income tax, and Massachusetts state income tax consistent with stability
of principal. The investment objective cannot be changed without approval of
shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Massachusetts and of other states, territories and possessions of the United
States, including the District of Columbia, and any political subdivision or
financing authority of any of these, the income from which is, in the opinion of
qualified legal counsel, exempt from both federal regular income tax and
Massachusetts state income tax imposed upon non-corporate taxpayers.
When determining whether a Massachusetts municipal security presents minimal
credit risks, the investment adviser considers the creditworthiness of the
issuer of the security, the issuer of a demand feature if the Fund has the
unconditional right to demand payment for the security, or the guarantor of
payment by either of those issuers.
If a security loses its rating or the security's rating is reduced below the
required minimum after the Fund purchased it, the Fund is not required to sell
the security. The investment adviser considers this event, however, in its
determination of whether the Fund should continue to hold the security in its
portfolio. If ratings made by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") change because of changes in those
organizations or in their rating systems, the Fund will try to use comparable
ratings as standards in accordance with the investment policies described in the
Fund's prospectus.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests which represent undivided proportional interests in lease
payments by a governmental or nonprofit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that
the participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they became
due. In the event of a default or failure of appropriation, unless the
participation interests are credit enhanced, it is unlikely that the
participants would be able to obtain an acceptable substitute source of
payment.
Under the criteria currently established by the Board of Trustees
("Trustees"), the Fund's investment adviser must consider the following
factors in determining the liquidity of municipal lease securities: (1)
the frequency of trades and quotes for the security; (2) the volatility
of quotations and trade prices for the security; (3) the number of
dealers willing to purchase or sell the security and the number of
potential purchasers; (4) dealer undertakings to make a market in the
security; (5) the nature of the security and the nature of the
marketplace trades; (6) the rating of the security and the financial
condition and prospects of the issuer of the security; (7) such other
factors as may be relevant to the Fund's ability to dispose of the
security; (8) whether the lease can be terminated by the lessee; (9) the
potential recovery, if any, from a sale of the leased property upon
termination of the lease; (10) the lessee's general credit strength; (11)
the likelihood that the lessee will discontinue appropriating funding for
the leased property because the property is no longer deemed essential to
its operations; and (12) any credit enhancement or legal recourse
provided upon an event of nonappropriation or other termination of the
lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
- --------------------------------------------------------------------------------
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
The Fund may engage in these transactions to an extent that would cause the
segregation of an amount up to 20% of the value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in high quality temporary investments during times of
unusual market conditions for defensive purposes and to maintain liquidity.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale
to repurchase them at a mutually agreed upon time and price within one
year from the date of acquisition. The Fund or its custodian will take
possession of the securities subject to repurchase agreements and these
securities will be marked to market daily. To the extent that the
original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund will only enter
into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's
investment adviser to be creditworthy, pursuant to guidelines established
by the Trustees.
From time to time, such as when suitable Massachusetts municipal securities are
not available, the Fund may maintain a portion of its assets in cash. Any
portion of the Fund's assets maintained in cash will reduce the amount of assets
in Massachusetts municipal securities and thereby reduce the Fund's yield.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for the
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money in amounts up to one-third of the value of its total assets,
including the amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings in excess of 5% of its total assets are
outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge.
DIVERSIFICATION OF INVESTMENTS
With regard to at least 50% of its total assets, no more than 5% of its
total assets are to be invested in the securities of a single issuer, and
no more than 25% of its total assets are to be invested in the securities
of a single issuer at the close of each quarter of each fiscal year.
Under this limitation, each governmental subdivision, including states,
territories, possessions of the United States, or their political
subdivisions, agencies, authorities, instrumentalities, or similar
entities, will be considered a separate issuer if its assets and revenues
are separate from those of the governmental body creating it and the
security is backed only by its own assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
nongovernmental issuer are considered to be issued solely by that issuer.
If, in the case of an industrial development bond or government-issued
security, a governmental or other entity guarantees the security, such
guarantee would be considered a separate security issued by the
guarantor, as well as the other issuer, subject to limited exclusions
allowed by the Investment Company Act of 1940.
- --------------------------------------------------------------------------------
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of 1933.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or nonpublicly issued Massachusetts municipal securities or
temporary investments or enter into repurchase agreements, in accordance
with its investment objective, policies, and limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of
the value of its total assets in cash or cash items (including
instruments issued by a U.S. branch of a domestic bank or savings and
loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment), securities issued or guaranteed
by the U.S. government, its agencies, or instrumentalities, or
instruments secured by these money market instruments, such as repurchase
agreements.
The above investment limitations cannot be changed without shareholder approval.
The Fund does not consider the issuance of separate classes of shares to involve
the issuance of "senior securities" within the meaning of the investment
limitation set forth above. The following limitations, however, may be changed
by the Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, reorganization, or other
acquisition.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
industrial development bonds or other municipal securities where the
principal and interest are the responsibility of companies (or
guarantors, where applicable) with less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
DEALING IN PUTS AND CALLS
The Fund will not purchase or sell puts, calls, straddles, spreads, or
any combination of them, except that the Fund may purchase municipal
securities accompanied by agreements of sellers to repurchase them at the
Fund's option.
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs, or leases.
- --------------------------------------------------------------------------------
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
securities which are illiquid, including repurchase agreements providing
for settlement in more than seven days after notice, certain restricted
securities not determined by the Trustees to be liquid, and
non-negotiable fixed time deposits with maturities over seven days.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its net assets during the coming fiscal year.
MASSACHUSETTS INVESTMENT RISKS
The Fund invests in obligations of Massachusetts issuers which results in the
Fund's performance being subject to risks associated with the overall economic
conditions present within Massachusetts (the "Commonwealth"). The following
information is a brief summary of the recent prevailing economic conditions and
a general summary of the Commonwealth's financial status. This information is
based on official statements relating to securities that have been offered by
Massachusetts issuers and from other sources believed to be reliable but should
not be relied upon as a complete description of all relevant information.
The Commonwealth has a diverse economy with manufacturing, education, health
care, computers and financial services all being significant contributors.
Massachusetts is generally considered the leader in research and development
within the biotechnology, software and robotics industries as well as having
many highly prestigious universities. In addition to a highly skilled and
educated workforce, the Commonwealth has one of the higher average per capita
incomes in this country.
Throughout the early to mid-1980's Massachusetts had a strong economy which was
evidenced by low unemployment and high personal income growth as compared to
national averages. However, beginning in the late 1980's, economic growth in the
New England region and Massachusetts, in particular, slowed and has shown
pronounced deterioration in the construction, real estate, financial and
manufacturing sectors. Between 1988 and 1992 there has been extensive job losses
that have resulted in a 10% reduction in the work force. In addition, after
years of above average property value growth, property values have decreased an
estimated 6% over the same period.
The two major revenue sources available to cities and towns in Massachusetts are
local property taxes and local aid from the Commonwealth. Property taxes are
subject to limitations imposed by a state-wide initiative approved by the voters
in November, 1980 (commonly known as Proposition 2-1/2), which limits the
property taxes that may be levied by any city or town in any fiscal year to the
lesser of (i) 2.5% of the full valuation of the real estate and personal
property therein or (ii) 2.5% over the previous year's levy limit plus any
growth in the tax base from new construction. In recent years the decrease in
property values due to the recession and the limitations of tax levy growth
imposed by Prop 2-1/2 have resulted in budget constraints for many cities and
towns.
The overall financial condition of the Commonwealth can also be illustrated by
the changes of its debt ratings. During the period in which the Commonwealth has
experienced its financial difficulties beginning in 1988, its general obligation
long-term debt ratings as determined by Moody's and S&P decreased from Aa and
AA+, respectively, to a low of Baa and BBB. Over the past year the Commonwealth
has had its debt ratings raised by the two rating agencies to A and A+ (Moody's
and S&P) reflecting its improved fiscal performance.
The Fund's concentration in securities issued by the Commonwealth and its
political subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities. The ability of the
Commonwealth or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political, and demographic
conditions within the Commonwealth; and the underlying fiscal condition of the
Commonwealth and its municipalities.
FEDERATED MUNICIPAL TRUST MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Management,
Federated Investors, Federated Securities Corp., Federated Services Company, and
Federated Administrative Services, Inc., and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue\* Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer and
Director, Trustee, or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company. Mr. Donahue is the father
of J. Christopher Donahue, Vice President of the Trust.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President,
Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate
Department Village Development Corporation; General Partner or Trustee in private
John R. Wood and real estate ventures in Southwest Florida; Director, Trustee, or
Associates, Inc., Realtors Managing General Partner of the Funds; formerly, President, Naples
3255 Tamiami Trail North Property Management, Inc.
Naples, FL
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza-- Director, Trustee, or Managing General Partner of the Funds; formerly,
23rd Floor Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Pittsburgh, PA Director, Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director,
Concord, MA Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Glen R. Johnson* President and Trustee, Federated Investors; President and/or Trustee of some of the
Federated Investors Tower Trustee Funds; staff member, Federated Securities Corp. and Federated
Pittsburgh, PA Administrative Services, Inc.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly,
Boston, MA President, State Street Bank & Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer
Learning Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Tower Federated Management, and Federated Research; Trustee, Federated
Pittsburgh, PA Services Company; President and Director, Federated Administrative
Services, Inc.; President or Vice President of the Funds; Director,
Trustee or Managing General Partner of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Chairman and Trustee of the Trust.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director, Federated Securities Corp.; President or Vice President of the
Pittsburgh, PA Funds; Director or Trustee of some of the Funds.
Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice
Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Trustee, Federated Services Company; Executive Vice
President, Treasurer, and Director, Federated Securities Corp.;
Chairman, Treasurer, and Director, Federated Administrative Services,
Inc.; Trustee or Director of some of the Funds; Vice President and
Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors Tower and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary, and Director,
Federated Administrative Services, Inc.; Director and Executive Vice
President, Federated Securities Corp.; Vice President and Secretary of
the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Vice President
of the Funds; Director, Trustee, or Managing General Partner of some of
the Funds; formerly, Vice President, The Standard Fire Insurance Compa-
ny and President of its Federated Research Division.
</TABLE>
*This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940, as amended.
\Member of the Trust's Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series,
Inc.;
- --------------------------------------------------------------------------------
DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT Series,
Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust;
Federated Government Trust; Federated Growth Trust; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Term U.S. Government Trust; Federated
Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund;
First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate
U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities
Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty U.S. Government Money Market
Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark Twain Funds; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran
Funds; The Passageway Funds; The Planters Funds; Portage Funds; RIMCO Monument
Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star
Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.;
Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark
Funds; Trust for Financial Institutions; Trust for Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; and Trust for U.S. Treasury
Obligations.
FUND OWNERSHIP
Officers and Trustees, as a group, own more than 1% of the Fund's outstanding
Shares as of November 29, 1993.
As of November 29, 1993, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of the Fund: State Street Bank
and Trust Company, North Quincy, Massachusetts, owned approximately 28,909,810
Shares (33.66%); John & Company, Burlington, Massachusetts, owned approximately
20,932,775 Shares (24.37%); and Scaup & Company, Boston, Massachusetts, owned
approximately 12,466,302 Shares (14.51%).
As of November 29, 1993, the following shareholder of record owned 5% or more of
the outstanding BayFunds Shares of the Fund: John & Company, Burlington,
Massachusetts, owned approximately 20,423,104 Shares (99.99%).
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All of the Class A (voting) shares of Federated Investors
are owned by a trust, the trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue. John F. Donahue is Chairman and Trustee,
Federated Management; Chairman and Trustee, Federated Investors; and Chairman
and Trustee of the Trust. John A. Staley, IV, is President and Trustee,
Federated Management; Vice President and Trustee, Federated Investors; Executive
Vice President, Federated Securities Corp.; and Vice President of the Trust. J.
Christopher Donahue is Trustee, Federated Management; President and Trustee,
Federated Investors; President and Director, Federated Administrative Services,
Inc.; Trustee, Federated Services Company; and Vice President of the Trust. John
W. McGonigle is Vice President, Secretary and Trustee, Federated Management;
Trustee, Vice President, Secretary, and General Counsel, Federated Investors;
Director, Executive Vice President, and Secretary, Federated Administrative
Services, Inc.; Director and Executive Vice President, Federated Securities
Corp.; Trustee, Federated Services Company; and Vice President and Secretary of
the Trust.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
October 31, 1993, 1992, and 1991, the Fund's adviser earned $498,975, $445,783,
and $379,567, respectively, of which $427,232, $445,783, and $379,567,
respectively, were voluntarily waived, because of undertakings to limit the
Fund's expenses.
- --------------------------------------------------------------------------------
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
These arrangements are not part of the advisory contract and have been
established only to comply with applicable state authorities. They may be
amended or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund at approximate cost.
For the fiscal years ended October 31, 1993, 1992, and 1991, the Fund incurred
costs for administrative services of $253,380, $197,636, and $194,694,
respectively. John A. Staley, IV, an officer of the Trust, and Dr. Henry J.
Gailliot, an officer of Federated Management, the adviser to the Fund, each hold
approximately 15% and 20%, respectively, of the outstanding common stock and
serve as directors of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services, Inc. For the
fiscal years ended October 31, 1993, 1992, and 1991, Federated Administrative
Services, Inc. paid approximately $165,431, $189,741, and $187,677,
respectively, for services
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the investment adviser will generally use those
who are recognized dealers in specific portfolio instruments, except when a
better price and execution of the order can be obtained elsewhere. The adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve wire system are open for business.
The procedure for purchasing Shares is explained in the prospectus under
"Investing in Institutional Service Shares."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. State Street Bank and Trust
Company acts as the shareholder's agent in depositing checks and converting them
to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7, as amended (the
"Rule"), promulgated by the Securities and Exchange Commission under the
Investment Company Act of 1940. Under the Rule, the Trustees must establish
procedures reasonably designed to stabilize the net asset value per share, as
computed for purposes of distribution and redemption, at $1.00 per share, taking
into account current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party (1) on no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
Although demand features and standby commitments are techniques and are defined
as "puts" under the Rule, the Fund does not consider them to be "puts" as that
term is used in the Fund's investment limitations. Demand features and standby
commitments are features which enhance an instrument's liquidity, and the
investment limitation which proscribes puts is designed to prohibit the purchase
and sale of put and call options and is not designed to prohibit the Fund from
using techniques which enhance the liquidity of portfolio instruments.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.5% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risk and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than 397 days can be
purchased by the Fund. For a discussion of the treatment of variable rate
municipal securities with demand features, refer to "Variable Rate Demand
Notes" in the prospectus.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
- --------------------------------------------------------------------------------
In periods of declining interest rates, the indicated daily yield on Shares of
the Fund, computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above, may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on Shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Institutional Service Shares." Although State Street
Bank does not charge for telephone redemptions, it reserves the right to charge
a fee for the cost of wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective Fund's portfolio. To the extent
available, such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Fund is obligated to redeem Shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net asset
value of the respective class during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
MASSACHUSETTS STATE INCOME TAX
Individual shareholders of the Fund who are subject to Massachusetts income
taxation will not be required to pay Massachusetts income tax on that portion of
their dividends which is attributable to interest earned on Massachusetts
tax-free municipal obligations, gain from the sale of certain of such
obligations and interest earned on obligations of United States territories or
possessions to the extent interest on such obligations is exempt from taxation
by the state pursuant to federal law. All remaining dividends will be subject to
Massachusetts income tax.
If a shareholder of the Fund is a Massachusetts business corporation or any
foreign business corporation which exercises its charter, qualifies to do
business, actually does business or owns or uses any part of its capital, plant
or other property in Massachusetts, then it will be subject to Massachusetts
excise taxation either as a tangible property corporation or as an intangible
property corporation. If the corporate shareholder is a tangible property
corporation, it will be taxed upon its net income allocated to Massachusetts and
the value of certain tangible property. If it is an intangible property
corporation, it will be taxed upon its net income and net worth allocated to
Massachusetts. Net income is gross income less allowable deductions for federal
income tax purposes, subject to specified modifications. Dividends received from
the Fund are includable in gross income and generally may not be deducted by a
corporate shareholder in computing its net income. The corporation's shares in
the Fund are not includable in the computation of the tangible property base of
a tangible property corporation, but are includable in the computation of the
net worth base of an intangible property corporation.
Shares of Massachusetts Municipal Cash Trust will be exempt from local property
taxes in Massachusetts.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for Institutional Service Shares for the seven-day period ended
October 31, 1993 was 1.98%. The yield for BayFunds Shares was 1.88% for the same
period.
The Fund calculates the yield for both classes of Shares daily, based upon the
seven days ending on the day of the calculation, called the "base period." This
yield is computed by:
determining the net change in the value of a hypothetical account with a balance
of one share at the beginning of the base period, with the net change excluding
capital changes but including the value of any additional shares purchased with
dividends earned from the original one share and (on funds that pay dividends
daily) all dividends declared on the original and any purchased shares;
dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, the performance will be reduced for those shareholders paying
those fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Fund's effective yield for Institutional Service Shares for the seven-day
period ended October 31, 1993 was 2.00%. The effective yield for BayFunds Shares
was 1.89% for the same period.
The Fund's effective yield for both classes of Shares is computed by compounding
the unannualized base period return by:
adding 1 to the base period return;
raising the sum to the 365/7th power; and
subtracting 1 from the result.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The Fund's tax-equivalent yield for Institutional Service Shares for the
seven-day period ended October 31, 1993 was 3.30%. The tax-equivalent yield for
BayFunds Shares was 3.13% for the same period.
The tax-equivalent yield for both classes of Shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that Institutional
Service Shares would have had to earn to equal its actual yield, assuming a 28%
federal tax rate and the 12% regular personal income tax rate imposed by
Massachusetts and assuming that income earned by the Fund is 100% tax-exempt on
a regular federal, state, and local basis.
- --------------------------------------------------------------------------------
TAX-EQUIVALENCY TABLE
Both classes of Shares may also use a tax-equivalency table in advertising and
sales literature. The interest earned by the municipal securities in the Fund's
portfolio generally remains free from federal regular income tax, and from the
regular personal income tax imposed by Massachusetts.* As the table below
indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between "tax-free" and taxable yields.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1993
STATE OF MASSACHUSETTS
- ----------------------------------------------------------------------------------------
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE
27.00% 40.00% 43.00% 48.00% 51.60%
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JOINT RETURN: $1- $36,901- $89,151- $140,001- Over
36,900 89,150 140,000 250,000 $250,000
SINGLE RETURN: $1- $22,101- $53,501- $115,001- Over
22,100 53,500 115,000 250,000 $250,000
- ----------------------------------------------------------------------------------------
<CAPTION>
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.50% 2.05% 2.50% 2.63% 2.88% 3.10%
2.00 2.74 3.33 3.51 3.85 4.13
2.50 3.42 4.17 4.39 4.81 5.17
3.00 4.11 5.00 5.26 5.77 6.20
3.50 4.79 5.83 6.14 6.73 7.23
4.00 5.48 6.67 7.02 7.69 8.26
4.50 6.16 7.50 7.89 8.65 9.30
5.00 6.85 8.33 8.77 9.62 10.33
5.50 7.53 9.17 9.65 10.58 11.36
6.00 8.22 10.00 10.53 11.54 12.40
</TABLE>
The above chart is for illustrative purposes only. It is not an indicator of
past or future performance of either class of Shares.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local regular or alternative minimum taxes.
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Futhermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of Institutional Service Shares depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates on money market instruments;
changes in the Fund's or either class of shares' expenses; and
the relative amount of Fund cash flow.
From time to time, the Fund may advertise the performance of Institutional
Service Shares compared to similar funds or portfolios using certain indices,
reporting services, and financial publications. These may include the following:
LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "money market
funds" category in advertising and sales literature.
Investors may use such an index in addition to the prospectus of Institutional
Service Shares to obtain a more complete view of the performance before
investing. Of course, when comparing performance of Institutional Service Shares
to any index, factors such as composition of the index and prevailing market
conditions should be considered in assessing the significance of such
comparisons.
- --------------------------------------------------------------------------------
When comparing funds using reporting services, or total return and yield,
investors should take into consideration any relevant differences in funds such
as permitted portfolio composition and methods used to value portfolio
securities and compute offering price.
Advertisements and other sales literature for Institutional Service Shares may
refer to total return. Total return is the historic change in the value of an
investment in Institutional Service Shares based on the monthly reinvestment of
dividends over a specified period of time.
0032603B-ISS (12/93)
MASSACHUSETTS MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
BAYFUNDS SHARES
PROSPECTUS
The BayFunds Shares of Massachusetts Municipal Cash Trust (the "Fund") offered
by this prospectus represent interests in a non-diversified investment portfolio
of Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund).
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax, and Massachusetts state income tax,
consistent with stability of principal. The Fund invests primarily in short-term
Massachusetts municipal securities, including securities of states, territories,
and possessions of the United States which are not issued by or on behalf of
Massachusetts or its political subdivisions and financing authorities, but which
are exempt from the federal regular and Massachusetts state income tax.
Shareholders can invest, reinvest, or redeem BayFunds Shares at any time with no
sales loads or redemption fees imposed by the Fund. Shareholders have access to
other portfolios in BayFunds.
THE BAYFUNDS SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS
OF BAYBANKS, INC., OR ITS SUBSIDIARIES, ARE NOT ENDORSED OR GUARANTEED BY
BAYBANKS, INC., OR ITS SUBSIDIARIES, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT
AGENCY. INVESTING IN THESE SHARES INVOLVES INVESTMENT RISKS INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in BayFunds Shares. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information for BayFunds
Shares dated December 31, 1993, with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is incorporated
by reference into this prospectus. You may request a copy of the Statement of
Additional Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact the Fund at the address
listed at the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 31, 1993
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Synopsis.......................................................................1
Summary of Fund Expenses.......................................................3
Financial Highlights--BayFunds Shares..........................................4
General Information............................................................5
Investment Information.........................................................5
Investment Objective.........................................................5
Investment Policies..........................................................5
Acceptable Investments.......................................................6
Variable Rate Demand Notes................................................6
Participation Interests...................................................6
Municipal Leases..........................................................7
Ratings...................................................................7
Credit Enhancement........................................................7
Demand Features...........................................................7
Restricted and Illiquid Securities........................................7
When-Issued and Delayed
Delivery Transactions...................................................8
Temporary Investments.....................................................8
Massachusetts Municipal Securities...........................................8
Standby Commitments..........................................................9
Massachusetts Investment Risks...............................................9
Non-Diversification..........................................................9
Investment Limitations......................................................10
Regulatory Compliance.......................................................10
Federated Municipal Trust Information.........................................10
Management of Federated Municipal Trust.....................................10
Board of Trustees........................................................10
Investment Adviser.......................................................10
Advisory Fees..........................................................10
Adviser's Background...................................................11
Distribution of BayFunds Shares.............................................11
Administrative Arrangements..............................................11
Administration of the Fund..................................................12
Administrative Services..................................................12
Custodian................................................................12
Transfer Agent and Dividend
Disbursing Agent.......................................................12
Sub-Transfer Agent.......................................................12
Shareholder Servicing Arrangements.......................................12
Legal Counsel............................................................12
Independent Public Accountants...........................................12
Net Asset Value...............................................................13
Pricing of Shares...........................................................13
Investing in BayFunds Shares..................................................13
Minimum Investment..........................................................13
When You May Purchase Shares................................................13
When Your Purchase Is Effective.............................................13
Purchases By Mail...........................................................14
Purchases By Phone..........................................................14
Purchases By Wire...........................................................14
Purchases Through BayBanks Offices..........................................15
Systematic Investment Program...............................................15
Exchanging Securities For Shares............................................15
Exchange Privileges...........................................................16
Exchanges By Telephone......................................................16
Written Exchanges...........................................................17
Exchanges Through BayBanks Offices..........................................17
Redeeming BayFunds Shares.....................................................17
When You May Redeem Shares..................................................17
When Redemptions are Paid...................................................17
Signature Guarantees...................................................18
Redemptions By Mail.........................................................18
Redemptions By Phone........................................................18
Redemptions By Wire.........................................................18
Redemptions Through BayBanks Offices........................................19
Redemptions Before Purchase Instruments
Clear.........................................................................19
Shareholder Information.......................................................19
Balances in Accounts........................................................19
Dividends and Distributions.................................................19
Certificates................................................................20
Confirmations and Statements................................................20
Corporate Customers.........................................................20
Voting Rights...............................................................20
Tax Information...............................................................21
Federal Income Tax..........................................................21
Massachusetts Tax Considerations............................................22
Other State and Local Taxes.................................................22
Performance Information.......................................................22
Tax Equivalent Yield..........................................................23
Tax-Equivalency Table.......................................................24
Other Classes of Shares.......................................................25
Financial Highlights--
Institutional Service Shares.............................................26
Financial Statements..........................................................27
Report of Independent
Public Accountants..........................................................42
Addresses......................................................Inside Back Cover
- --------------------------------------------------------------------------------
SYNOPSIS
INVESTMENT OBJECTIVE
This prospectus relates only to the BayFunds Shares class (the "Shares") of
Massachusetts Municipal Cash Trust, a professionally managed, non-diversified
portfolio in Federated Municipal Trust, which seeks to provide current income
which is exempt from federal regular income tax and Massachusetts state income
tax consistent with stability of principal by investing primarily in short-term
Massachusetts municipal securities.
As a shareholder of the Shares of the Fund, you have access to all of the
portfolios of BayFunds, an open-end, management investment company. BayFunds
consists of five separate, professionally managed investment portfolios with
distinct investment objectives and policies.
As of the date of this prospectus, BayFunds offers shares in five portfolios:
BAYFUNDS MONEY MARKET
PORTFOLIO
SEEKS TO PROVIDE CURRENT INCOME CONSISTENT WITH STABILITY OF PRINCIPAL AND
LIQUIDITY, BY INVESTING IN A PORTFOLIO OF MONEY MARKET INSTRUMENTS WITH
REMAINING MATURITIES OF 397 DAYS OR LESS;
BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO
SEEKS TO PROVIDE CURRENT INCOME CONSISTENT WITH STABILITY OF PRINCIPAL AND
LIQUIDITY, BY INVESTING, UNDER NORMAL MARKET CONDITIONS, AT LEAST 65% OF
THE VALUE OF ITS TOTAL ASSETS IN U.S. TREASURY OBLIGATIONS WITH REMAINING
MATURITIES OF 397 DAYS OR LESS;
BAYFUNDS SHORT TERM YIELD PORTFOLIO
SEEKS A HIGH LEVEL OF CURRENT INCOME CONSISTENT WITH PRESERVATION OF
CAPITAL, BY INVESTING IN A DIVERSIFIED PORTFOLIO OF HIGH-GRADE DEBT
OBLIGATIONS. THE FUND WILL MAINTAIN A DOLLAR-WEIGHTED AVERAGE MATURITY OF
THREE YEARS OR LESS;
BAYFUNDS BOND PORTFOLIO
SEEKS TO ACHIEVE HIGH CURRENT INCOME AND CAPITAL APPRECIATION, BY
INVESTING, UNDER NORMAL MARKET AND ECONOMIC CONDITIONS, AT LEAST 65% OF THE
VALUE OF ITS TOTAL ASSETS IN BONDS; AND
BAYFUNDS EQUITY PORTFOLIO
SEEKS TO PROVIDE LONG-TERM CAPITAL APPRECIATION, BY INVESTING, UNDER NORMAL
MARKET AND ECONOMIC CONDITIONS, AT LEAST 65% OF THE VALUE OF ITS TOTAL
ASSETS IN A BROADLY DIVERSIFIED PORTFOLIO OF EQUITY SECURITIES, WITH
CURRENT INCOME AS A SECONDARY CONSIDERATION.
Shareholders may redeem Shares in the Fund and purchase shares in the other
BayFunds portfolios, without any redemption fee or other charge. (See "Exchange
Privileges" at pages 16-17).
VALUING SHARES
The Fund attempts to maintain a stable net asset value (or market value) of
$1.00 per share, although there is no assurance that it will be able to do so.
(See "Net Asset Value" at page 13.) An investment in the Fund is neither insured
nor guaranteed by the U.S. government. In addition, the Shares offered by this
prospectus are not guaranteed or endorsed by BayBanks, Inc. or its subsidiaries,
are not deposits or obligations of the banking subsidiaries of BayBanks, Inc.,
and are not insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board nor any other governmental agency. Investing in these Shares
involves investment risks including the possible loss of principal.
BUYING AND REDEEMING SHARES
You can conveniently buy and redeem Shares on any business day. (See "Investing
in BayFunds Shares" at pages 13-15 and "Redeeming BayFunds Shares" at pages
17-19.) Shares of the Fund are bought and redeemed at net asset value without a
sales load or redemption fees. The minimum initial investment in the Fund is
$2,500 or $500 if you participate in the Systematic Investment Program. (See
"Systematic Investment Program" at page 15.) Subsequent investments must be in
amounts of at least $100, or $50 if you participate in the Systematic Investment
Program.
FUND MANAGEMENT
The Fund's investment adviser is Federated Management (the "Adviser"), which
makes investment decisions for the Fund. (See "Federated Municipal Trust
Information" at pages 10-11.)
SHAREHOLDER SERVICES
When you become a shareholder, you can easily obtain information about your
account, and about the Fund and BayFunds' portfolios by calling toll-free
1-800-BAYFUND (1-800-229-3863.) (See "Corporate/Capital Markets Customers" at
page 20 if you are a Corporate and/or Capital Markets customer at BayBanks.)
RISK FACTORS
An investment in the Fund may involve certain risks that are explained more
fully in the sections of this prospectus discussing the Fund's investment
policies and its acceptable investments (See "Acceptable Investments" at pages
6-10.)
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES
<TABLE>
<S> <C>
BAYFUNDS SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)........................ None
Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, as applicable)........ None
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................ None
Exchange Fee.................................................................................................. None
ANNUAL BAYFUNDS SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)............................................................................. 0.10%
12b-1 Fee..................................................................................................... None
Total Other Expenses.......................................................................................... 0.55%
Shareholder Servicing Fee (2)........................................................................0.00%
Total BayFunds Shares Operating Expenses (3)......................................................... 0.65%
</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
0.50%.
(2) The maximum Shareholder Servicing Fee is 0.25%.
(3) The Total BayFunds Shares Operating Expenses in the table above are based on
expenses expected during the fiscal year ending October 31, 1994. The Total
BayFunds Shares Operating Expenses were 0.65% for the fiscal year ended
October 31, 1993 and were 1.08% absent the voluntary waiver of a portion of
the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF BAYFUNDS SHARES OF THE FUND
WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN BAYFUNDS SHARES"AND "FEDERATED
MUNICIPAL TRUST INFORMATION." Wire-transferred redemptions may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS
<S> <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. As noted in the table above, the Fund charges no
redemption fee for BayFunds Shares............................................................... $ 7 $ 21
</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.
The information set forth in the foregoing table and example relates only to the
BayFunds Shares of the Fund. The Fund also offers another class of shares called
Institutional Service Shares. BayFunds Shares and Institutional Service Shares
are subject to certain of the same expenses; however, Institutional Service
Shares are not subject to a Shareholder Servicing Fee or a Sub-Transfer Agent
Fee. Certain expenses are allocated as incurred by each class. These expenses
are greater for BayFunds Shares than for Institutional Service Shares. All other
expenses are allocated based upon the average daily net assets of each class.
See "Other Classes of Shares."
MASSACHUSETTS MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--BAYFUNDS SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on page 42.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1993*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- ----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------
Net investment income 0.01
-------
- ----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.01)
-------
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00
-------
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN** 1.25%(a)
- ----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------------
Expenses 0.65%(b)
- ----------------------------------------------------------------------------------------------------
Net investment income 1.85%(b)
- ----------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.43%(b)
- ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $18,143
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from March 8, 1993 (date of initial public
investment) to October 31, 1993.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
- --------------------------------------------------------------------------------
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Trustees ("Trustees") has established two classes of
shares, BayFunds Shares and Institutional Service Shares. This prospectus
relates only to BayFunds Shares of the Fund (the "Shares").
Shares are designed primarily for individuals, partnerships and corporations who
seek a convenient means of accumulating an interest in a professionally managed,
non-diversified portfolio limited to short-term Massachusetts municipal
securities. The Fund is not likely to be a suitable investment for
non-Massachusetts taxpayers or retirement plans since it intends to invest
primarily in Massachusetts municipal securities.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price. For information on how to purchase
Shares, please refer to "Investing in BayFunds Shares." A minimum initial
investment of $2,500 is required. This minimum requirement may be reduced to
$500 in connection with participation in the Systematic Investment Program.
Information on redeeming Shares may be found under "Redeeming BayFunds Shares."
INVESTMENT INFORMATION
IF YOU ARE SEEKING CURRENT INCOME WHICH IS EXEMPT FROM FEDERAL REGULAR
INCOME TAX AND MASSACHUSETTS STATE INCOME TAX CONSISTENT WITH LIQUIDITY AND
STABILITY OF PRINCIPAL, THEN THE FUND MAY BE A SUITABLE INVESTMENT.
THE FUND SEEKS TO MAINTAIN A STABLE $1.00 SHARE PRICE, REFERRED TO AS THE
NET ASSET VALUE PER SHARE, BY INVESTING IN A PORTFOLIO OF SHORT-TERM
MASSACHUSETTS MUNICIPAL SECURITIES. WHILE THE FUND CANNOT GUARANTEE A
STABLE SHARE PRICE, THE SHORT-TERM NATURE OF ITS INVESTMENTS HELPS TO
MINIMIZE PRICE FLUCTUATIONS.
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax, and Massachusetts state income tax
consistent with stability of principal. The investment objective cannot be
changed without approval of shareholders. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by following
the investment policies described in this prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than Massachusetts.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a
portfolio of Massachusetts municipal securities with remaining maturities of 13
months or less at the time of purchase by the Fund. As a matter of investment
policy, which cannot be changed without the approval of shareholders, the Fund
invests its assets so that at least 80% of its annual interest income is exempt
from federal regular income tax and Massachusetts state income tax. The average
maturity of the securities in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the
investment policies may be changed by the Trustees without the approval of
shareholders. Shareholders will be notified before any material changes in these
policies become effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Massachusetts and its political subdivisions and financing authorities, and
obligations of other states, territories and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and Massachusetts state
income tax imposed upon non-corporate taxpayers. Examples of Massachusetts
municipal securities include, but are not limited to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced through a
later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and pre-refunded
bonds) and leases; and
participation, trust and partnership interests in any of the foregoing
obligations.
At least 80% of the value of the Fund's total assets will be invested in
Massachusetts municipal securities.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term municipal securities that have variable
or floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days' prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest adjustment or the date on which the Fund
may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in municipal securities from financial
institutions such as commercial and investment banks, savings and loan
associations and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Fund to treat the income from
the investment as exempt from federal income tax. The Fund invests in these
participation interests in order to obtain credit enhancement or demand features
that would not be available through direct ownership of the underlying municipal
securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities and may be
considered to be illiquid. They may take the form of a lease, an installment
purchase contract, a conditional sales contract, or a participation certificate
on any of the above.
RATINGS
The Massachusetts municipal securities in which the Fund invests must either be
rated in one of the two highest short-term rating categories by one or more
nationally recognized statistical rating organizations ("NRSROs") or be of
comparable quality to securities having such ratings. An NRSRO's two highest
rating categories are determined without regard for sub-categories and
gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc.
("Moody's"), or FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service ("Fitch") are
all considered rated in one of the two highest short-term rating categories. The
Fund will follow applicable regulations in determining whether a security rated
by more than one NRSRO can be treated as being in one of the two highest
short-term rating categories; currently, such securities must be rated by two
NRSROs in one of their two highest categories. See "Regulatory Compliance."
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may have been credit-enhanced by a
guaranty, letter of credit or insurance. The Fund typically evaluates the credit
quality and ratings of credit-enhanced securities based upon the financial
condition and ratings of the party providing the credit enhancement (the "credit
enhancer"), rather than the issuer. The bankruptcy, receivership or default of
the credit enhancer will adversely affect the quality and marketability of the
underlying security.
The Fund may have more than 25% of its total assets invested in securities
credit-enhanced by banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities or another third party,
and may not be transferred separately from the underlying security. The Fund
uses these arrangements to provide the Fund with liquidity and not to protect
against changes in the market value of the underlying securities. The
bankruptcy, receivership or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities laws. Under criteria established by the Trustees, certain restricted
securities are considered liquid. To the extent restricted securities are deemed
to be illiquid, the Fund will limit their purchase, together with other
securities considered to be illiquid, to 10% of its net assets.
WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS
The Fund may purchase Massachusetts municipal securities on a when-issued or
delayed delivery basis. In when-issued and delayed delivery transactions, the
Fund relies on the seller to complete the transaction. The seller's failure to
complete the transaction may cause the Fund to miss a price or yield considered
to be advantageous.
TEMPORARY INVESTMENTS
From time to time, during periods of other than normal market conditions, the
Fund may invest in short-term, non-Massachusetts municipal tax-exempt
obligations or other taxable temporary investments. All temporary investments
will satisfy the same credit quality standards as the Fund's acceptable
investments. See "Ratings" above. Temporary investments include: notes issued by
or on behalf of municipal or corporate issuers; marketable obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities; other debt
securities; commercial paper; certificates of deposit of banks; and repurchase
agreements (arrangements in which banks, broker/dealers, and other recognized
financial institutions sell the Fund a temporary investment and agree to
repurchase it at a mutually agreed upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax
or Massachusetts state income tax.
MASSACHUSETTS MUNICIPAL SECURITIES
Massachusetts municipal securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Massachusetts municipal securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire sites
or construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.
ISSUERS OF GENERAL OBLIGATION BONDS INCLUDE STATES, COUNTIES, CITIES,
TOWNS, AND OTHER GOVERNMENTAL UNITS.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS
Some securities dealers are willing to sell municipal securities to the Fund
accompanied by their commitments to repurchase the municipal securities prior to
maturity, at the Fund's option, for the amortized cost of the municipal
securities at the time of repurchase. These arrangements are not used to protect
against changes in the market value of municipal securities. They permit the
Fund, however, to remain fully invested and still provide liquidity to satisfy
redemptions. The cost of municipal securities accompanied by these "standby"
commitments could be greater than the cost of municipal securities without such
commitments. Standby commitments are not marketable or otherwise assignable and
have value only to the Fund. The default or bankruptcy of a securities dealer
giving such a commitment would not affect the quality of the municipal
securities purchased. However, without a standby commitment, these securities
could be more difficult to sell. The Fund enters into standby commitments only
with those dealers whose credit the Adviser believes to be of high quality.
MASSACHUSETTS INVESTMENT RISKS
Yields on Massachusetts municipal securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the Commonwealth of Massachusetts
or its municipalities could impact the Fund's portfolio. The ability of the Fund
to achieve its investment objective also depends on the continuing ability of
the issuers of Massachusetts municipal securities and demand features, or the
credit enhancers of either, to meet their obligations for the payment of
interest and principal when due.
Investing in Massachusetts municipal securities which meet the Fund's quality
standards may not be possible if the Commonwealth of Massachusetts or its
municipalities do not maintain their high quality, short-term current credit
ratings. In addition, certain Massachusetts constitutional amendments,
legislative measures, executive orders, administrative regulations, and voter
initiatives could result in adverse consequences affecting Massachusetts
municipal securities. An expanded discussion of the current economic risks
associated with the purchase of Massachusetts municipal securities is contained
in the Statement of Additional Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified investment portfolio because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, with
regard to at least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 15% of the value of those assets to secure such
borrowings. This investment limitation cannot be changed without shareholder
approval.
The Fund will not invest more than 5% of its total assets in industrial
development bonds or other municipal securities when the payment of principal
and interest is the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations, including the
operation of any predecessor. This limitation can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and the Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended (the "ICA"). In particular,
the Fund will comply with the various requirements of Rule 2a-7 under the ICA,
which regulates money market mutual funds. The Fund will determine the effective
maturity of its investments, as well as its ability to consider a security as
having received the requisite short-term ratings by NRSROs, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
- -------------------------------------------------------
FEDERATED MUNICIPAL TRUST
INFORMATION
MANAGEMENT OF FEDERATED
MUNICIPAL TRUST
BOARD OF TRUSTEES
A BOARD OF TRUSTEES SUPERVISES FEDERATED MUNICIPAL TRUST.
The Trust is managed by a Board of Trustees. The Trustees are responsible for
managing the business affairs of the Trust and for exercising all of the powers
of the Trust except those reserved for the shareholders. An Executive Committee
handles the Trustees' responsibilities between meetings of the Trustees.
INVESTMENT ADVISER
ACTING UNDER THE DIRECTION OF THE TRUSTEES, THE ADVISER MAKES INVESTMENT
DECISIONS FOR THE FUND.
Pursuant to an investment advisory contract (the "Advisory Contract") with the
Trust, investment decisions for the Fund are made by Federated Management, the
Fund's investment adviser (the "Adviser") subject to direction by the Trustees.
The Adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to .50 of 1% of the
Fund's average daily net assets. Under the Advisory Contract, which provides for
the voluntary waiver of the advisory fee by the Adviser, the Adviser may
voluntarily waive some or all of the advisory fee. This does not include
reimbursement to the Fund of any expenses incurred by shareholders who use the
transfer agent's sub-accounting facilities. The Adviser can terminate this
voluntary waiver of expenses at any time in its sole discretion. The Adviser has
also undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND
THE ADVISER HAS EXTENSIVE INVESTMENT EXPERIENCE.
Federated Management, a Delaware business trust organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. Total assets under management or administration by these
and other subsidiaries of Federated Investors are approximately $70 billion.
Federated Investors, which was founded in 1956 as Federated Investors, Inc.,
develops and manages mutual funds primarily for the financial industry.
Federated Investors' track record of competitive performance and its
disciplined, risk-averse investment philosophy serve approximately 3,500 client
institutions nationwide. Through these same client institutions, individual
shareholders also have access to this same level of investment expertise.
DISTRIBUTION OF BAYFUNDS SHARES
FEDERATED SECURITIES CORP. IS THE PRINCIPAL DISTRIBUTOR FOR SHARES OF THE
FUND.
Federated Securities Corp. is the principal distributor (the "Distributor") for
the Shares of the Fund. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATIVE ARRANGEMENTS
The Distributor may select brokers and dealers to provide distribution and
administrative services. The Distributor may also select administrators
(including depository institutions such as commercial banks and savings and loan
associations) to provide administrative services. These administrative services
include, but are not limited to, distributing prospectuses and other
information, providing accounting assistance and communicating or facilitating
purchases and redemptions of Shares.
Brokers, dealers, and administrators will receive fees from the Distributor
based upon shares owned by their clients or customers. The fees are calculated
as a percentage of the average aggregate net asset value of shareholder accounts
during the period for which the brokers, dealers, and administrators provide
services. The current annual rate of such fees is .25 of 1%. Any fees paid for
these services by the Distributor will be reimbursed by the Adviser.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an under-
writer or distributor of most securities. In the event the Glass-Steagall Act is
deemed to prohibit depository institutions from acting in the administrative
capacities described below or should
Congress relax current restrictions on depository institutions, the Trustees
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
VARIOUS ORGANIZATIONS PROVIDE SERVICES TO THE FUND.
ADMINISTRATIVE SERVICES
Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides the Fund with the administrative personnel and services necessary to
operate the Fund and the separate classes. Such services include certain legal
and accounting services. Federated Administrative Services, Inc., provides these
at approximate cost.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund.
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Services Company ("Transfer Agent"), Pittsburgh, Pennsylvania, a
subsidiary of Federated Investors, is transfer agent for the Shares of the Fund
and dividend disbursing agent for the Fund.
SUB-TRANSFER AGENT
Supervised Service Company, Inc. (the "Sub-Transfer Agent"), Kansas City,
Missouri, is the sub-transfer agent for the Shares of the Fund. The
Institutional Service Shares class has no sub-transfer agent.
SHAREHOLDER SERVICING ARRANGEMENTS
BayBank Systems, Inc., Waltham, Massachusetts, is the Fund's shareholder
servicing agent (the "Shareholder Servicing Agent"). The Fund may pay the
Shareholder Servicing Agent a fee based on the average daily net asset value of
Shares for which it provides shareholder services. These shareholder services
include, but are not limited to, distributing prospectuses and other
information, providing shareholder assistance and communicating or facilitating
purchases and redemptions of Shares. This fee will be equal to .25 of 1% of the
Fund's average daily net assets for which the Shareholder Servicing Agent
provides services; however, the Shareholder Servicing Agent may choose
voluntarily to waive all or a portion of its fee at any time.
LEGAL COUNSEL
Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh,
Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the
Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
- -------------------------------------------------------
NET ASSET VALUE
THE TERM "NET ASSET VALUE" PER SHARE REFERS TO THE VALUE OF ONE FUND
SHARE.
The Fund attempts to stabilize the net asset value of its Shares at $1.00 by
valuing the portfolio securities using the amortized cost method. Net asset
value per Share for purposes of pricing purchases and redemptions is calculated
by dividing the value of all securities and other assets belonging to the Fund,
less the liabilities charged to the Fund by the number of outstanding Shares of
the Fund.
The Fund cannot guarantee that its net asset value will always remain at $1.00
per Share.
PRICING OF SHARES
The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m.
(Eastern time), and the close of regular trading hours on the New York Stock
Exchange, currently 4:00 p.m. (Eastern time), Monday through Friday, except on
the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
- -------------------------------------------------------
INVESTING IN BAYFUNDS SHARES
SHARES ARE SOLD "NO-LOAD"--WITHOUT A SALES CHARGE. YOUR MINIMUM INITIAL
INVESTMENT IS ONLY $2,500 OR $500 IF YOU PARTICIPATE IN THE SYSTEMATIC
INVESTMENT PROGRAM.
MINIMUM INVESTMENT
You can become a shareholder with an initial investment of $2,500 or $500 if you
participate in the Systematic Investment Program. Subsequent investments must be
in amounts of at least $100, or if you participate in the Systematic Investment
Program, the minimum for additional Share purchases is $50. The Fund may waive
any investment minimums from time to time. In addition, the Fund may reduce or
waive investment minimums for investors purchasing through qualified BayBanks
accounts.
WHEN YOU MAY PURCHASE SHARES
The Fund offers Shares only on days on which the New York Stock Exchange and the
Federal Reserve Bank of Boston are open for business ("Business Days"). If the
Shareholder Servicing Agent receives your purchase order on a non-
Business Day, the order will not be executed until the next Business Day in
accordance with the Distributor's procedures. The Fund and the Distributor
reserve the right to reject any purchase request.
WHEN YOUR PURCHASE IS EFFECTIVE
If your purchase order is received in good order and accepted by the Fund from
the Transfer Agent by 1:00 p.m. (Eastern time) on a Business Day, it will be
executed at the net asset value next determined and your Shares will begin
earning dividends that day. The Transfer Agent will not communicate your
purchase order to the Fund until the Shareholder Servicing Agent has
received the purchase price in Federal funds or other immediately available
funds. If your purchase order is received in good order and accepted by the Fund
from the Transfer Agent after 1:00 p.m. (Eastern time), and prior to 4:00 p.m.
(Eastern time), it will be executed at the net asset value next determined and
Shares will begin earning dividends the next Business Day. When you purchase
Shares by check, the order is considered received when the check is converted
into federal funds, normally within two Business Days.
You must submit a completed application at the time of your initial purchase.
The Shareholder Servicing Agent is responsible for the prompt transmission of
purchase orders received in good order to the Transfer Agent.
YOU MAY BUY SHARES BY MAIL, TELEPHONE, WIRE, OR IN PERSON THROUGH BAYBANKS
OFFICES.
PURCHASES BY MAIL
If you make your initial Share purchase by mail, you must send a completed
application, and a check payable to the Fund, to:
BayFunds
P.O. Box 665
Waltham, MA 02254-9614
You may obtain an application by calling
1-800-BAYFUND.
You may make subsequent investments in the Fund at any time by sending a check
for a minimum of $100 payable to the Fund at the following address:
BayFunds
P.O. Box 5-0900
Woburn, MA 01815-0900
along with either (a) the detachable form that regularly accompanies
confirmation of a prior transaction, (b) a subsequent order form that may be
obtained by calling 1-800-BAYFUND, or (c) a letter stating the amount of the
investment, the name of the Fund, the exact name and address of the account, and
your account number.
If the check does not clear, your purchase order will be cancelled.
PURCHASES BY PHONE
Once you are a shareholder, you may purchase additional Shares by calling
1-800-BAYFUND.
You must have previously authorized the Fund in writing to accept telephone
requests. If you have not done so, call 1-800-BAYFUND to receive the necessary
form and information on this Fund feature.
The establishment of certain types of deposit account relationships with
BayBanks may permit the direct deduction of your purchase price from your
BayBanks deposit account. Please call 1-800-BAYFUND to determine whether your
BayBanks deposit account qualifies.
For the protection of investors, all phone communications may be recorded where
not otherwise prohibited by law.
PURCHASES BY WIRE
If you are a shareholder, you may purchase additional Shares by wire to
BayBanks, as agent for the Shareholder Servicing Agent, as follows:
BayBanks
ABA Number: 0110-0174-2
Attention: Mutual Funds Services
For Credit to: (shareholder name and account number)
Further Credit to: BayFunds Shares, Massachusetts Municipal Cash Trust
Shares cannot be purchased by wire on days on which the New York Stock Exchange
and the Federal Reserve Wire System are not open for business and on the
following holidays: Columbus
Day, Veterans' Day, Martin Luther King Day, or Patriots' Day.
PURCHASES THROUGH BAYBANKS OFFICES
You may place an order to purchase Shares in person through designated BayBanks
offices.
Purchase orders placed through BayBanks offices typically would be received by
the Transfer Agent within two Business Days. If you want more prompt processing,
you should consider another method, such as "Purchases By Phone."
SYSTEMATIC INVESTMENT PROGRAM
YOU CAN BUY SHARES CONVENIENTLY THROUGH THE SYSTEMATIC INVESTMENT
PROGRAM.
When you participate in the Systematic Investment Program, you can purchase
additional Shares in minimum amounts of $50. You must previously have authorized
in writing the amount of funds to be deducted automatically from eligible
BayBanks deposit accounts or your deposit account maintained at a domestic
financial institution which is an automated clearing house member, and the
frequency of the deductions. The funds will be invested in Shares at the net
asset value next determined. The Fund may reduce or waive the investment
minimums for investors purchasing through qualified BayBanks accounts.
EXCHANGING SECURITIES FOR SHARES
The Fund may accept securities in exchange for Shares. The Fund will allow such
exchanges only upon the prior approval of the Fund and a determination by the
Fund and the Adviser that the securities to be exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies of the
Fund, must have a readily ascertainable market value and must be liquid. The
Fund acquires the exchanged securities for investment and not for resale. The
market value of any securities exchanged in an initial investment, plus any
cash, must be at least $25,000.
Securities accepted by the Fund will be valued in the same manner as the Fund
values its assets. The basis of the exchange will depend upon the net asset
value of Shares on the day the securities are valued. One Share of the Fund will
be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription or other rights
attached to the securities become the property of the Fund, along with the
securities.
- -------------------------------------------------------
EXCHANGE PRIVILEGES
IF YOUR INVESTMENT NEEDS CHANGE, YOU CAN EASILY REDEEM FUND SHARES AND
PURCHASE SHARES OF ANY BAYFUNDS' PORTFOLIO AT NO CHARGE.
BayFunds consists of the BayFunds Money Market Portfolio, the BayFunds U.S.
Treasury Money Market Portfolio, the BayFunds Short Term Yield Portfolio, the
BayFunds Bond Portfolio and the BayFunds Equity Portfolio. As a shareholder, you
have access to all of these portfolios ("Participating Funds") of BayFunds.
Because the BayFunds offer separate classes of shares, Fund shareholders (other
than certain trust and institutional investors, including qualified employee
benefit plans) must purchase shares of the Investment Shares class of these
Participating Funds.
You may redeem Shares having a net asset value of at least $100 and purchase
shares of any other Participating Funds in which you have an account. The
minimum initial investment to establish an account in any other Participating
Fund is $2,500 or $500 if you participate in the Systematic Investment Program.
BayFunds does not charge any fees for these transactions.
Shares will be redeemed at the net asset value next determined and Shares of the
Participating Fund to be acquired will be purchased at the net asset value per
share next determined after receipt of the request by the Transfer Agent on a
Business Day.
If you do not have an account in the Participating Fund whose shares you want to
acquire, you must establish an account. Prior to any such transaction, you must
receive a copy of the current prospectus of the Participating Fund into which a
purchase is to be effected. This account will be registered in the same name and
you will receive your dividends and distributions as an automatic reinvestment
in additional shares. If the new account registration (name, address, and
taxpayer identification number) is not identical to your existing account,
please call 1-800-BAYFUND for the necessary new account or transfer procedures.
You may find this privilege useful if your investment objectives or market
outlook should change after you invest in the Fund or in any of the
Participating Funds. You may obtain further information on this privilege and
obtain a prospectus by calling 1-800-BAYFUND.
The exchange privilege is available to shareholders resident in any state in
which Participating Funds' shares being acquired may be sold.
BayFunds reserves the right to terminate this privilege at any time on 60 days'
notice. Shareholders will be notified if this privilege is terminated.
Depending on the circumstances, an exchange with a fluctuating net asset value
Participating Fund may generate a short-or long-term capital gain or loss for
federal income tax purposes.
EXCHANGES BY TELEPHONE
You may provide instructions to redeem Shares and purchase shares of any
Participating Funds by calling 1-800-BAYFUND.
You must have previously authorized the Fund in writing to accept telephone
requests. If you have not done so, call 1-800-BAYFUND to receive the necessary
form and information on this Fund feature. The Fund uses reasonable procedures
(including a shareholder identity test and sending a written confirmation of
each telephone transaction) to confirm that instructions given by telephone are
genuine. However, the Fund is not responsible for the authenticity of telephone
instructions or for any losses caused by fraudulent or unauthorized telephone
instructions if the Fund reasonably believed that the instructions were genuine.
WRITTEN EXCHANGES
You may send a written request to redeem Shares and purchase shares of any
Participating Funds to:
BayFunds
P.O. Box 5-0900
Woburn, MA 01815-0900
Your written request must include your name and tax identification number; the
name of the Fund, the dollar amount or number of Shares to be redeemed; the name
of the Participating Fund in which shares are to be purchased; and your account
number. Your request must be signed by the registered owner(s) exactly as
required by the account application.
EXCHANGES THROUGH BAYBANKS OFFICES
You may place an order to redeem Shares and purchase shares of any Participating
Funds in person through designated BayBanks offices.
Orders received through designated BayBanks offices typically would be received
by the Transfer Agent within two Business Days. For more prompt processing, you
should consider another method, such as "Exchanges By Telephone."
- -------------------------------------------------------
REDEEMING BAYFUNDS SHARES
WHEN YOU SELL YOUR SHARES--"REDEEM" THEM--YOU RECEIVE THE NET ASSET VALUE
PER SHARE NEXT DETERMINED AFTER YOU'VE MADE THE REQUEST. THERE ARE NO FEES
OR OTHER REDEMPTION CHARGES (EXCEPT FOR REDEMPTIONS BY WIRE). YOU MAY
REDEEM SOME OR ALL OF YOUR INVESTMENT.
WHEN YOU MAY REDEEM SHARES
The Fund redeems Shares at the net asset value next determined after the Fund
has received your redemption request from the Transfer Agent in proper form.
Redemption requests can be executed only on Business Days. If your redemption
request is received by the Shareholder Servicing Agent on a non-Business Day,
the Transfer Agent will not communicate your redemption request to the Fund
until the next Business Day.
The Fund will not process any redemptions until a completed application has been
received.
WHEN REDEMPTIONS ARE PAID
Redemption proceeds may be credited to an eligible BayBanks deposit account,
paid by check, or paid by wire, as you previously designated in writing. The
Fund ordinarily will make payment for Shares redeemed after proper receipt from
the Transfer Agent of the redemption request and of all documents in proper form
within one Business Day to an eligible BayBanks deposit account, within five
Business Days if you requested redemption proceeds by check, or the same day by
wire if the Fund receives your redemption request from the Transfer Agent by
12:00 noon (Eastern time) on the day of redemption. Shares redeemed and wired
the same day will not receive the dividend declared on the day of redemption.
SIGNATURE GUARANTEES. If you request a redemption for an amount in excess of
$10,000 (no limitation if the proceeds are being credited to your
BayBanks deposit account), a redemption of any amount to be sent to an address
other than your address of record with the Fund, the transfer of the
registration of Shares, or a redemption of any amount payable to someone other
than yourself as the shareholder of record, your signature must be guaranteed on
a written redemption request by a trust company or insured commercial bank; an
insured savings and loan association or savings bank; a member firm of a
national or regional stock exchange; or any other "eligible guarantor
institution," as defined in the Securities Exchange Act of 1934. The Transfer
Agent has adopted standards for accepting signature guarantees from the above
institutions. The Fund may elect in the future to limit eligible signature
guarantors to institutions that are members of a signature guarantee program.
The Fund does not accept signatures guaranteed by a notary public. The Fund and
the Transfer Agent reserve the right to amend these standards at any time
without notice. If you have a question about the proper form for redemption
requests, call 1-800-BAYFUND.
YOU MAY REDEEM SHARES BY MAIL, PHONE, WIRE OR THROUGH BAYBANKS OFFICES.
REDEMPTIONS BY MAIL
You may redeem Shares by submitting a written request for redemption to:
BayFunds
P.O. Box 5-0900
Woburn, MA 01815-0900
Your written request must include your name and tax identification number, the
Fund's name, the dollar amount or number of Shares to be redeemed, and your
account number. Your request must be signed by the registered owner(s) exactly
as required by the account application.
REDEMPTIONS BY PHONE
You may redeem Shares by calling 1-800-BAYFUND.
You must have previously authorized the Fund in writing to accept telephone
requests. If you have not done so, call 1-800-BAYFUND to receive the necessary
form.
In the event of drastic economic or market changes, you may experience
difficulty in redeeming by telephone. If this occurs, you should consider
another method of redemption, such as "Redemptions by Mail" or "Redemptions by
Wire." The Fund uses reasonable procedures (including a shareholder identity
test and sending a written confirmation of each telephone transaction) to
confirm that instructions given by telephone are genuine. However, the Fund is
not responsible for the authenticity of telephone instructions or for any losses
caused by fraudulent or unauthorized telephone instructions if the Fund
reasonably believed that the instructions were genuine.
REDEMPTIONS BY WIRE
You may redeem Shares by wire (see "Purchases By Wire") or by calling
1-800-BAYFUND. Redemption proceeds of at least $1,000 will be wired directly to
the domestic commercial bank and account you previously designated in writing.
You are charged a fee for each wire redemption and the fee is deducted from your
redemption proceeds.
The Fund reserves the right to wire redemption proceeds within seven days after
receiving the redemption order if, in its judgment, an earlier payment could
adversely affect the Fund. The Fund also reserves the right to terminate or
modify the "Redemptions By Wire" or "Redemptions By Phone" procedures at any
time. In that event, shareholders would be promptly notified. Neither the Fund,
the Transfer Agent, the Sub-Transfer Agent, nor the Shareholder Servicing Agent
will be responsible for the authenticity of redemption instructions received by
phone.
REDEMPTIONS THROUGH BAYBANKS
OFFICES
You may place an order to redeem Shares in person through designated BayBanks
offices.
Redemption orders received through designated BayBanks offices typically would
be received by the Transfer Agent within two Business Days. For more prompt
processing, you should consider another method, such as "Redemptions By Phone."
REDEMPTIONS BEFORE PURCHASE
INSTRUMENTS CLEAR
If any portion of the Shares to be redeemed represents an investment made with
uncollected funds, the Fund reserves the right to delay payment of proceeds
until the Shareholder Servicing Agent is reasonably certain that the funds have
been collected, which could take up to ten calendar days.
- -------------------------------------------------------
SHAREHOLDER INFORMATION
BALANCES IN ACCOUNTS
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem your Shares and send you the proceeds if, due to shareholder redemptions
your account balance falls below a minimum value of $1,000. However, before
Shares are redeemed to close an account, the shareholder will be notified in
writing and given 60 days to purchase additional Shares to meet the minimum
balance requirement. The Fund reserves the right to amend this standard upon 60
days' prior written notice to shareholders. The Fund also reserves the right to
redeem Shares involuntarily or make payment for redemptions in the form of
securities if it appears appropriate to do so in light of the Fund's
responsibilities under the ICA.
DIVIDENDS AND DISTRIBUTIONS
YOU EARN DIVIDENDS DAILY AND RECEIVE THEM MONTHLY AS AN AUTOMATIC
REINVESTMENT IN ADDITIONAL SHARES.
Dividends from the Fund's net investment income are declared daily to
shareholders of record immediately following the 1:00 p.m. (Eastern time)
pricing of Shares. Dividends are paid monthly within five Business Days after
the end of such calendar month. The Fund does not expect to realize any net
long-term capital gains. However, if any such gains are realized, they will be
distributed to shareholders at least annually.
You will receive your dividends and your distributions as an automatic
reinvestment in additional Shares at the net asset value next determined on the
payment dates.
CERTIFICATES
The Fund's Transfer Agent maintains a Share account for each shareholder of
record. Share certificates are not issued.
CONFIRMATIONS AND STATEMENTS
Confirmations of each purchase, exchange or redemption are sent to each
shareholder. Monthly statements are sent to report transactions as well as
dividends paid during the month. The Fund may suspend or terminate its practice
of confirming each transaction at any time without notice.
CORPORATE CUSTOMERS/CAPITAL MARKETS CUSTOMERS
Corporate and/or Capital Markets customers of BayBanks interested in purchasing
Shares should consult their account relationship managers for procedures
applicable to their accounts or call 1-800-554-3311. This prospectus should be
read in conjunction with any materials provided by BayBanks regarding such
procedures.
VOTING RIGHTS
AS A SHAREHOLDER, YOU ARE ENTITLED TO VOTE ON CERTAIN MATTERS.
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that in matters
affecting only a particular Fund or class, only shares of that particular Fund
or class are entitled to vote. As of November 29, 1993, John & Company,
Burlington, Massachusetts, owned 99.99% of the voting securities of the BayFunds
Shares of the Fund, and, therefore, may, for certain purposes, be deemed to
control the BayFunds Shares of the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances. Trustees may be removed by the Trustees or by
shareholders at a special meeting. A special meeting of the shareholders shall
be called by the Trustees upon the written request of shareholders owning at
least 10% of the outstanding shares of all series of the Trust entitled to vote.
- -------------------------------------------------------
TAX INFORMATION
THIS DISCUSSION OF TAXES IS FOR GENERAL INFORMATION ONLY. PLEASE CONSULT
YOUR OWN TAX ADVISER ABOUT YOUR PARTICULAR SITUATION.
FEDERAL INCOME TAX
The Fund intends to meet the requirements of the Internal Revenue Code in order
not to be liable for any federal income taxes on income and gains distributed to
Fund shareholders. The Fund will distribute substantially all of its net
investment income and realized gains at least annually.
The Fund will be treated as a single, separate entity for federal income tax
purposes.
INTEREST ON SOME MUNICIPAL SECURITIES MAY BE SUBJECT TO THE FEDERAL
ALTERNATIVE MINIMUM TAX.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Should the Fund
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply to dividends received as additional Shares.
Information on the tax status of dividends and distributions is provided
annually.
MASSACHUSETTS TAX CONSIDERATIONS
Under existing Massachusetts law, dividends paid by the Fund will be exempt from
Massachusetts personal income tax if such dividends are directly attributable to
interest earned on (i) obligations issued by the Commonwealth of Massachusetts,
its political subdivisions or agencies; or (ii) obligations of the United
States, its territories or possessions to the extent exempt from taxation by the
states pursuant to federal law. Conversely, to the extent that dividends paid by
the Fund are derived from other types of obligations, such dividends will not be
exempt from Massachusetts personal income tax.
Shareholders subject to the Massachusetts corporate excise tax must include all
dividends paid by the Fund in their net income, and the value of their shares of
stock in the Fund in their net worth, when computing the Massachusetts corporate
excise tax.
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from state income taxes in states
other than Massachusetts or from personal property taxes. State laws differ on
this issue, and shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
- -------------------------------------------------------
PERFORMANCE INFORMATION
YOU CAN FOLLOW THE FUND'S PERFORMANCE.
From time to time, in advertisements or in reports to shareholders, the
performance and yield of the Fund may be quoted and compared to those of other
mutual funds with similar investment objectives and to relevant money market
indices or to rankings prepared by independent services
or other financial or industry publications that monitor the performance of
mutual funds. For example, the performance of the Fund may be compared to data
prepared by Lipper Analytical Services, Inc., a widely recognized independent
service which monitors the performance of mutual funds.
National financial publications in which performance and yield data are reported
may include The Wall Street Journal, The New York Times, Forbes, or Money
magazine. Publications of a local or regional nature, such as The Boston Globe
or The Boston Herald, may also be used in comparing the performance and yield of
the Fund.
The yield of the Shares represents the annualized rate of income earned on an
investment in the Shares over a seven-day period. It is the annualized dividends
earned during the period on the investment shown as a percentage of the
investment. The effective yield is calculated similarly to the yield but, when
annualized, the income earned by an investment in the Shares is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment. The
tax-equivalent yield of the BayFunds Shares is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that the BayFunds Shares
would have had to earn to equal their actual yield, assuming a specific tax
rate.
Advertisements and other sales literature may also refer to total return. Total
return represents
the change, over a specified period of time, in the value of an investment in
the Shares after reinvesting all income distributions. It is calculated by
dividing that change by the initial investment and is expressed as a percentage.
Yield, effective yield, tax-equivalent yield and total return will be calculated
separately for BayFunds Shares and Institutional Service Shares. The yield,
effective yield, tax-equivalent yield and total return for Institutional Service
Shares will exceed that of BayFunds Shares due to the difference in Class
Expenses.
From time to time, the Fund may advertise the performance of BayFunds Shares
using certain reporting services and/or compare its performance of BayFunds
Shares to certain indices.
TAX-EQUIVALENT YIELD
The tax-equivalent yield for BayFunds Shares for the seven-day period ended
October 31, 1993 was 3.13%. The tax-equivalent yield for Institutional Service
Shares was 3.30% for the same period.
The tax-equivalent yield for both classes of shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that BayFunds Shares
would have had to earn to equal its actual yield, assuming a 28% federal tax
rate and the 12% regular personal income tax rate imposed by Massachusetts and
assuming that income earned by the Fund is 100% tax-exempt on a regular federal,
state, and local basis.
TAX-EQUIVALENCY TABLE
Both classes of Shares may also use a tax-equivalency table in advertising and
sales literature. The interest earned by the municipal securities in the Fund's
portfolio generally remains free from federal regular income tax, and from the
regular personal income taxes imposed by Massachusetts.* As the table below
indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between "tax-free" and taxable yields.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1993
STATE OF MASSACHUSETTS
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE 27.00% 40.00% 43.00% 48.00% 51.60%
- ------------------------------------------------------------------------------------
JOINT RETURN: $1- $36,901- $89,151- $140,001- Over
36,900 89,150 140,000 250,000 $ 250,000
SINGLE RETURN: $1- $22,101- $53,501- $115,001- Over
22,100 53,500 115,000 250,000 $ 250,000
- ------------------------------------------------------------------------------------
<CAPTION>
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.50% 2.05% 2.50% 2.63% 2.88% 3.10%
2.00 2.74 3.33 3.51 3.85 4.13
2.50 3.42 4.17 4.39 4.81 5.17
3.00 4.11 5.00 5.26 5.77 6.20
3.50 4.79 5.83 6.14 6.73 7.23
4.00 5.48 6.67 7.02 7.69 8.26
4.50 6.16 7.50 7.89 8.65 9.30
5.00 6.85 8.33 8.77 9.62 10.33
5.50 7.53 9.17 9.65 10.58 11.36
6.00 8.22 10.00 10.53 11.54 12.40
</TABLE>
NOTE: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes
paid on comparable taxable investments were not used to increase federal
deductions.
The above chart is for illustrative purposes only. It is not an indicator of
past or future performance of either class of Shares.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local regular or alternative minimum taxes.
- -------------------------------------------------------
OTHER CLASSES OF SHARES
Institutional Service Shares are sold to accounts for which financial
institutions act in an agency capacity. Investments in Institutional Service
Shares are subject to a minimum initial investment of $25,000. Institutional
Service Shares are sold at net asset value.
The Distributor may pay an administrative fee to a financial institution or
broker for administrative services provided to the Institutional Service Shares
class, and may pay such a fee for administrative services provided to the
BayFunds Shares class. Any fee paid by the Distributor for administrative
services will not be an expense of either class, but will be reimbursed to the
Distributor by the Adviser.
The amount of dividends payable to Institutional Service Shares will exceed the
amount of dividends payable to BayFunds Shares by an amount equal to the
shareholder service and sub-transfer agent fees allocated to the BayFunds
Shares.
The stated advisory fee is the same for both
classes of the Fund.
MASSACHUSETTS MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 42.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1993 1992 1991 1990*
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------
Net investment income 0.02 0.03 0.05 0.03
- --------------------------------------------------------------------------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.03) (0.05) (0.03)
- --------------------------------------------------------------------------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------- --------- --------- --------- ---------
TOTAL RETURN** 1.99% 2.87% 4.63% 2.59%(a)
- ---------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------
Expenses 0.53% 0.34% 0.30% 0.17%(b)
- ---------------------------------------------------------------------------
Net investment income 1.97% 2.82% 4.48% 5.66%(b)
- ---------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.43% 0.55% 0.69% 0.57%(b)
- ---------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------
Net assets, end of period (000 omitted) $84,524 $85,570 $81,681 $63,483
- ---------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 18, 1990 (date of initial public
investment) to October 31, 1990.
** Based on net asset value which does not reflect sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ------------- ------------------------------------------------------------------------- ----------- ---------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--99.5%
- ----------------------------------------------------------------------------------------
MASSACHUSETTS--88.2%
-------------------------------------------------------------------------
$ 2,000,000 Boston, MA, 2.75% Certificates of Participation (Fleet National Bank
LOC), 4/1/94 P-1 $ 2,000,000
-------------------------------------------------------------------------
3,900,000 Boston, MA, Water & Sewer Commission Weekly VRDNs (Series
1985A)/(Dai-Ichi Kangyo Bank Ltd. LOC) VMIG1 3,900,000
-------------------------------------------------------------------------
1,860,000 Chelmsford, MA, 2.75% RANs, 2/18/94 NR(3) 1,860,534
-------------------------------------------------------------------------
1,000,000 Commonwealth of Massachusetts Dedicated Income Tax Daily VRDNs (Series
B)/(National Westminster Bank PLC LOC) A-1+ 1,000,000
-------------------------------------------------------------------------
1,500,000 Dighton-Rehoboth, MA, Regional School District, 2.65% RANs, 11/24/93 NR 1,500,045
-------------------------------------------------------------------------
1,265,000 Fairhaven, MA, 2.98% RANs, 1/7/94 NR(3) 1,265,404
-------------------------------------------------------------------------
3,200,000 Framingham, MA, IDA Weekly VRDNs (Perin Corp.)/(Barclays Bank PLC LOC) A-1+ 3,200,000
-------------------------------------------------------------------------
1,615,082 Greenfield, MA, 2.45% BANs, 12/1/93 NR(3) 1,615,146
-------------------------------------------------------------------------
650,000 Ludlow, MA, Weekly VRDNs (Advanced Drainage Systems, Inc.)/(FNB, Chicago
LOC) P-1 650,000
-------------------------------------------------------------------------
1,800,000 Massachusetts Municipal Wholesale Electric Company VRDCs Trust, Weekly
VRDNs (Series 1993D)/(AMBAC Insured, Hong Kong Shanghai Banking Corp.
BPA) A-1 1,800,000
-------------------------------------------------------------------------
4,000,000 Massachusetts Bay Transit Authority, 2.85% Semi-Annual TOBs (Long Term
Credit Bank of Japan Ltd. LOC), 3/1/94 A-1 4,000,000
-------------------------------------------------------------------------
2,000,000 Massachusetts Commonwealth Weekly VRDNs GO Bonds (Series PA13)/(MBIA and
FGIC Insured) VMIG1 2,000,000
-------------------------------------------------------------------------
7,480,000 Massachusetts HEFA Weekly VRDNs (Harvard University Guaranty) A-1+ 7,480,000
-------------------------------------------------------------------------
$ 3,400,000 Massachusetts HEFA Weekly VRDNs (Berkshire Consolidated Realty)/(Banque
Paribas LOC) A-1 $ 3,400,000
-------------------------------------------------------------------------
</TABLE>
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- ------------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ----------------------------------------------------------------------------------------
MASSACHUSETTS--CONTINUED
-------------------------------------------------------------------------
1,940,000 Massachusetts HEFA Weekly VRDNs (Newbury College)/ (Barclays Bank PLC
LOC) P-1 1,940,000
-------------------------------------------------------------------------
200,000 Massachusetts HEFA Weekly VRDNs (Series A)/(Brigham & Women's
Hospital)/(Sanwa Bank Ltd. LOC) P-1 200,000
-------------------------------------------------------------------------
1,500,000 Massachusetts HEFA Weekly VRDNs (Series B)/(Clark University)/(Sanwa Bank
Ltd. LOC) VMIG1 1,500,000
-------------------------------------------------------------------------
4,600,000 Massachusetts HEFA Weekly VRDNs (Series E)/(Capital Asset Program)/(Sanwa
Bank Ltd. LOC) A-1+ 4,600,000
-------------------------------------------------------------------------
3,700,000 Massachusetts HEFA Weekly VRDNs (Series F)/(Boston College)/(Sanwa Bank
Ltd. LOC) VMIG1 3,700,000
-------------------------------------------------------------------------
2,500,000 Massachusetts HEFA Weekly VRDNs (Series G)/(Massachusetts Institute of
Technology Guaranty) NR(1) 2,500,000
-------------------------------------------------------------------------
7,500,000 Massachusetts HEFA, 2.60% CP, (Series E)/(Tufts University Guaranty),
Mandatory Tender 12/14/93 A-1+ 7,500,000
-------------------------------------------------------------------------
1,500,000 Massachusetts HEFA, 2.85% Serial Bond (Series E)/(Brigham & Women's
Hospital Guaranty), 7/1/94 NR(2) 1,500,000
-------------------------------------------------------------------------
600,000 Massachusetts HEFA, 2.90% Serial Bond (Morton Hospital & Medical
Center)/(Connie Lee Insured), 7/1/94 NR(1) 599,604
-------------------------------------------------------------------------
1,000,000 Massachusetts HFA SFH, 2.95% Annual TOBs (Series 25)/ (Bayerische
Landesbank LOC), Mandatory Tender 9/1/94 A-1+ 1,000,000
-------------------------------------------------------------------------
2,000,000 Massachusetts IDA Weekly VRDNs (Williston Northampton School)/(National
Westminster Bank PLC LOC) P-1 2,000,000
-------------------------------------------------------------------------
300,000 Massachusetts IFA PCR Weekly VRDNs (Series 1992A)/ (Holyoke Water Power
Co.)/(Canadian Imperial Bank of Commerce LOC) VMIG1 300,000
-------------------------------------------------------------------------
$ 4,000,000 Massachusetts IFA PCR, 2.65% CP (Series A)/(New England Power Company
Guaranty), Mandatory Tender 1/11/94 A-1 $ 4,000,000
-------------------------------------------------------------------------
1,000,000 Massachusetts IFA Weekly VRDNs (Berkshire School)/ (National Westminster
Bank PLC LOC) VMIG1 1,000,000
-------------------------------------------------------------------------
</TABLE>
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- ------------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ----------------------------------------------------------------------------------------
MASSACHUSETTS--CONTINUED
-------------------------------------------------------------------------
5,525,000 Massachusetts IFA Weekly VRDNs (Kendall Square, Inc.)/ (National
Westminster Bank PLC LOC) P-1 5,525,000
-------------------------------------------------------------------------
4,000,000 Massachusetts IFA Weekly VRDNs (Series 1992A)/(Ogden Haverhill)/(Union
Bank of Switzerland LOC) VMIG1 4,000,000
-------------------------------------------------------------------------
2,000,000 Massachusetts IFA Weekly VRDNs (Series 1993B)/(New England Deaconess
Association)/(Banque Paribas LOC) A-1 2,000,000
-------------------------------------------------------------------------
925,000 Massachusetts IFA Weekly VRDNs (Series A)/(Hockomock YMCA)/(Westpac
Banking Corp. LOC) P-1 925,000
-------------------------------------------------------------------------
1,700,000 New Bedford, MA, 3.40% RANs (Fleet National Bank BPA),
1/14/94 P-1 1,702,716
-------------------------------------------------------------------------
2,000,000 New Bedford, MA, 4.75% BANs (Fleet National Bank BPA),
11/12/93 P-1 2,000,787
-------------------------------------------------------------------------
3,330,000 North Andover, MA, 3.00% BANs, 6/29/94 NR 3,335,321
-------------------------------------------------------------------------
1,923,000 Northampton, MA, 2.47% BANs, 6/29/94 NR 1,923,862
-------------------------------------------------------------------------
1,080,000 Norwood, MA, IDRB, 3.125% Annual TOBs (Dash Realty Trust)/(Fleet National
Bank LOC), Mandatory Tender 7/1/94 SP-1 1,080,000
------------------------------------------------------------------------- ---------------
Total 90,503,419
------------------------------------------------------------------------- ---------------
PUERTO RICO--11.4%
-------------------------------------------------------------------------
5,400,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit Suisse
and Sumitomo Bank Ltd. LOCs) A-1+ 5,400,000
-------------------------------------------------------------------------
4,000,000 Puerto Rico Industrial Medical and Environmental Pollution Authority,
2.70% Annual TOBs (Abbott Laboratories, Inc. Guaranty), 3/1/94 NR(1) 4,000,000
-------------------------------------------------------------------------
$ 2,290,000 Puerto Rico Industrial, Medical and Environmental PCA, 2.90% Annual TOBs
(Series 1983A)/(Reynolds Metals Co.)/(ABN AMRO Bank N.V. LOC), Optional
Tender 9/1/94 A-1+ $ 2,291,850
------------------------------------------------------------------------- ---------------
Total 11,691,850
------------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS (AT AMORTIZED COST) $ 102,195,269\
------------------------------------------------------------------------- ---------------
</TABLE>
* See Notes to Portfolio of Investments.
\ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($102,667,192) at October
31, 1993.
The following abbreviations are used in this portfolio:
AMBAC--American Municipal Bond
Assurance Corporation
BANs--Bond Anticipation Notes
BPA--Bond Purchase Agreement
CP--Commercial Paper
FGIC--Financial Guaranty Insurance Company
GO--General Obligation
HEFA--Health and Education Facilities
Authority
HFA--Housing Finance Authority/Agency
IDA--Industrial Development Authority
IDRB--Industrial Development Revenue Bonds
IFA--Industrial Finance Authority/Agency
LOC--Letter of Credit
LOCs--Letters of Credit
MBIA--Municipal Bond Investors Assurance
PCA--Pollution Control Authority
PCR--Pollution Control Revenue
RANs--Revenue Anticipation Notes
SFH--Single Family Housing
TOBs--Tender Option Bonds
VRDCs--Variable Rate Demand Certificates
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
S&P
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S
Moody's short-term ratings are designated Moody's Investment Grade (MIG or VMIG
(see below)). The purpose of the MIG of VMIG ratings is to provide investors
with a simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
FITCH
Fitch's short-term ratings place greater emphasis on the existence of liquidity
necessary to meet the issuer's obligations in a timely manner.
F-1 Strongest degree of assurance for timely payment. Those issues determined to
provide exceptionally strong credit quality are given a plus (+)
designation.
F-2 Notes reflecting a degree of assurance for timely payment only slightly less
in degree than the highest category.
VARIABLE RATE DEMAND NOTES (VRDNS)
AND
TENDER OPTION BONDS (TOBS)
RATINGS
S&P
Standard & Poor's assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-1+, AA/A-1K, and A/A-1. (The
definitions for the long-term and the short-term ratings are provided below.)
MOODY'S
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity.
In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the
first representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the second representing an evaluation of
the degree of risk associated with the demand feature. The VMIG rating can be
assigned a 1 or 2 designation using the same definitions described above for the
MIG rating.
FITCH
Fitch usually assigns two ratings to long-term debt issues that include
provisions for a variable rate demand feature. The long-term rating addresses
the ability of the obligor to pay debt service and the short-term rating
addresses the timely payment of the demand feature. Examples of rating
designation are as follows: AAA/F-1+, AA/F-1K, and A/F-1. (The definitions for
the long-term and short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
S&P
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."
MOODY'S
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
The following is an explanation of the Fitch ratings. These ratings are not
referenced in the Portfolio of Investments.
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
FITCH
F-1 Issues assigned this rating reflect a stong degree of assurance for timely
payment. Those issuers determined to possess the strongest degree of
assurance for timely payment are denoted with a plus (+) sign designation.
F-2 Issuers carrying this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the "F-1+" and
"F-1" categories.
LONG-TERM DEBT RATINGS
(INVESTMENT GRADE)
S&P
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
principal and interest than debt rated in higher ratings categories.
MOODY'S
Aaa Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large margin and
principal is secure. While the various protective elements are likely to
change, such changes which can be foreseen are most unlikely to impair
the fundamentally strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in AAA securities.
A Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present that suggest a susceptibility to impairment some time in
the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
FITCH
AAA Bonds that are rated AAA are of the highest credit quality. The obligor
has an exceptionally strong ability to pay debt service.
AA Bonds that are rated AA are of very high quality. The obligor has a very
strong ability to pay debt service. Debt rated in this category may also
have a (+) or (-) sign with a rating to indicate the relative position
within the rating category.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
NR indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P, Moody's, or Fitch with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated in one of the two highest short-term ratings
categories by a nationally recognized statistical ratings organization.
NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by
Fitch.
NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch.
NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "A" by Standard & Poor's, Moody's, or Fitch.
NR(4) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by
Fitch.
MASSACHUSETTS MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $ 102,195,269
- -----------------------------------------------------------------------------------------------------
Cash 707,029
- -----------------------------------------------------------------------------------------------------
Interest receivable 527,874
- -----------------------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 5,931
- ----------------------------------------------------------------------------------------------------- ---------------
Total assets 103,436,103
- -----------------------------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------------------------------------------
Payable for investments purchased $ 602,891
- ----------------------------------------------------------------------------------------
Dividends payable 117,456
- ----------------------------------------------------------------------------------------
Accrued expenses and other liabilities 48,564
- ---------------------------------------------------------------------------------------- -----------
Total liabilities 768,911
- ----------------------------------------------------------------------------------------------------- ---------------
NET ASSETS for 102,667,192 shares of beneficial interest outstanding $ 102,667,192
- ----------------------------------------------------------------------------------------------------- ---------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- -----------------------------------------------------------------------------------------------------
Institutional Service Shares ($84,524,347 / 84,524,347 shares of beneficial interest outstanding)
$1.00
- ----------------------------------------------------------------------------------------------------- ---------------
BayFunds Shares ($18,142,845 / 18,142,845 shares of beneficial interest outstanding) $1.00
- ----------------------------------------------------------------------------------------------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 2,488,073
- --------------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 498,975
- -------------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 253,380
- -------------------------------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 87,177
- -------------------------------------------------------------------------------------------
Trustees' fees 2,245
- -------------------------------------------------------------------------------------------
Auditing fees 16,507
- -------------------------------------------------------------------------------------------
Legal fees 12,985
- -------------------------------------------------------------------------------------------
Printing and postage 30,065
- -------------------------------------------------------------------------------------------
Fund share registration costs 41,287
- -------------------------------------------------------------------------------------------
Insurance premiums 7,890
- -------------------------------------------------------------------------------------------
Taxes 773
- -------------------------------------------------------------------------------------------
Miscellaneous 5,961
- ------------------------------------------------------------------------------------------- -----------
Total expenses 957,245
- -------------------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 5) 427,232
- ------------------------------------------------------------------------------------------- -----------
Net expenses 530,013
- -------------------------------------------------------------------------------------------------------- -------------
Net investment income $ 1,958,060
- -------------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C>
1993 1992
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------
Net investment income $ 1,958,060 $ 2,512,473
- ---------------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ----------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ----------------------------------------------------------------------------------
Institutional Service Shares (1,874,757) (2,512,460)
- ----------------------------------------------------------------------------------
Cash Series Shares -- (13)
- ----------------------------------------------------------------------------------
BayFunds Shares (83,303) --
- ---------------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from distributions to shareholders (1,958,060) (2,512,473)
- ---------------------------------------------------------------------------------- ---------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- ----------------------------------------------------------------------------------
Proceeds from sale of shares 277,390,674 188,432,361
- ----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 451,819 194,403
- ----------------------------------------------------------------------------------
Cost of shares redeemed (260,744,847) (184,738,219)
- ---------------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from Fund share transactions 17,097,646 3,888,545
- ---------------------------------------------------------------------------------- ---------------- ----------------
Change in net assets 17,097,646 3,888,545
- ----------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------
Beginning of period 85,569,546 81,681,001
- ---------------------------------------------------------------------------------- ---------------- ----------------
End of period $ 102,667,192 $ 85,569,546
- ---------------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company
with several portfolios. The financial statements included herein are only those
of Massachusetts Municipal Cash Trust (the "Fund"). The financial statements of
the other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
From December 31, 1990, until May 17, 1992 the Fund provided two classes of
shares ("Institutional Service Shares" and "Cash Series Shares"). Cash Series
Shares were identical in all respects to Institutional Service Shares except
that Cash Series Shares were sold pursuant to a distribution plan ("Plan")
adopted in accordance with Investment Company Act Rule 12b-1. Under the Plan,
the Fund paid Federated Securities Corp. (the "distributor") a fee at an annual
rate up to .40 of 1% of the average daily net asset value of Cash Series Shares
to finance any activity which was principally intended to result in the sale of
Cash Series Shares. As of May 17, 1992, the Plan was terminated by the Board of
Trustees ("Trustees") of the Trust. As a result of the termination of the Plan,
fee accruals under the Plan have been discontinued.
Effective March 8, 1993 (date of initial public offering), the Fund provided an
additional class of shares ("BayFunds Shares"). BayFunds Shares are identical in
all respects to Institutional Service Shares except that BayFunds Shares were
sold pursuant to a shareholder servicing fee of up to .25 of 1% of average daily
net assets of BayFunds Shares and a sub-transfer agent fee.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Trustees has determined that the best method
currently available for valuing portfolio securities is amortized cost. The
Fund's use of the amortized cost method to value its portfolio securities
is conditioned on its compliance with Rule 2a-7 under the Investment
Company Act of 1940.
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state, than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such
factors, at October 31, 1993, 85.1% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The
aggregate percentages by financial institution ranged from 0.3% to 9.8% of
total investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest earned net of premium, and original issue discount as
required by the Internal Revenue Code.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code (the "Code") applicable to investment companies and
to distribute to shareholders each year all of its
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
net income. Accordingly, no provision for federal tax is necessary.
Dividends paid by the Fund representing net interest received on tax-exempt
municipal securities are not includable by shareholders as gross income for
federal income tax purposes because the Fund intends to meet certain
requirements of the Code applicable to regulated investment companies which
will enable the Fund to pay exempt-interest dividends. The portion of such
interest, if any, earned on private activity bonds issued after August 7,
1986 may be considered a tax preference item to shareholders for the
purpose of computing the alternative minimum tax.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Fund
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objectives and policies
and not for the purpose of investment leverage. The Fund will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Fund will maintain security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
E. DEFERRED EXPENSES--Costs incurred by the Fund in connection with its
initial share registration, other than organization expenses, were deferred
and are being amortized on a straight-line basis through May 1995.
F. EXPENSES--Expenses of the Fund (other than shareholder servicing fees and
sub-transfer agent fees) and waivers and reimbursements, if any, are
allocated to each class of shares based on its relative daily average net
assets for the period. Expenses incurred by the Trust which do not
specifically relate to an individual Fund are allocated among all Funds
based on a Fund's relative net asset value size or as deemed appropriate by
the administrator.
G. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) DIVIDENDS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash, or in additional
shares at the net asset value on the payable date.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1993, capital paid-in aggregated $102,667,192.
Transactions in Fund shares were as follows:
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SERVICE SHARES 1993 1992
<S> <C> <C>
Shares outstanding, beginning of period 85,569,546 81,680,650
- -----------------------------------------------------------------------------------
Shares sold 254,082,837 188,432,361
- -----------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 367,572 194,402
- -----------------------------------------------------------------------------------
Shares redeemed (255,495,608) (184,737,867)
- ----------------------------------------------------------------------------------- ---------------- ----------------
Shares outstanding, end of period 84,524,347 85,569,546
- ----------------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
CASH SERIES SHARES 1993 1992
<S> <C> <C>
Shares outstanding, beginning of period -- 351
- -----------------------------------------------------------------------------------
Shares sold -- --
- -----------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared -- 1
- -----------------------------------------------------------------------------------
Shares redeemed -- (352)
- ----------------------------------------------------------------------------------- ---------------- ----------------
Shares outstanding, end of period -- --
- ----------------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
BAYFUNDS SHARES 1993 1992
<S> <C> <C>
Shares outstanding, beginning of period -- --
- -----------------------------------------------------------------------------------
Shares sold 23,307,837 --
- -----------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 84,247 --
- -----------------------------------------------------------------------------------
Shares redeemed (5,249,239) --
- ----------------------------------------------------------------------------------- ---------------- ----------------
Shares outstanding, end of period 18,142,845 --
- ----------------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Management, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to .50 of 1% of the Fund's
average daily net assets. Adviser has voluntarily agreed to waive a portion of
its fee. Adviser can modify or terminate this voluntary waiver of expense at any
time at its sole discretion. For the fiscal year ended October 31, 1993, the
investment advisory fee amounted to $498,975, of which $427,232 was waived in
accordance with such undertaking.
Organizational expenses ($44,840) and start-up administrative services expenses
($43,014) were borne initially by the Adviser. The Fund has agreed to pay the
Adviser, at an annual rate of .005 of 1% of average daily net assets and .01 of
1% of average daily net assets for organization expenses and start-up
administrative expenses, respectively, until the expenses borne initially by the
Adviser are reimbursed, or the expiration of five years from May 18, 1990, the
date the Trust's portfolio became effective, whichever occurs earlier. During
the fiscal year ended October 31, 1993, the Fund paid Adviser $4,917 and $9,835,
respectively, pursuant to this agreement.
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
During the fiscal year ended October 31, 1993, the Fund engaged in purchase and
sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7
of the Investment Company Act of 1940 amounting to $123,934,015 and
$129,750,000, respectively. These purchases and sales were conducted on an
arms-length basis insofar as they were transacted for cash consideration only,
at independent current market prices and without brokerage commission, fee or
other remuneration.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Certain Officers and Trustees of the
Trust are Officers and Directors of the above corporations.
(6) CURRENT CREDIT RATINGS
Current credit ratings and related notes are unaudited.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST (Massachusetts Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of
Massachusetts Municipal Cash Trust, (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio investments, as of October 31, 1993, the related statement of
operations for the year then ended, and the statement of changes in net assets,
and the financial highlights (see pages 4 and 26 of the prospectus) for the
periods presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1993, by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Massachusetts Municipal Cash Trust, an investment portfolio of Federated
Municipal Trust, as of October 31, 1993, the results of its operations for the
year then ended, and the changes in its net assets and the financial highlights
for the periods presented in conformity with generally accepted accounting
principles.
ARTHUR
ANDERSEN & CO.
Pittsburgh, Pennsylvania
December 13, 1993
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<PAGE>
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<PAGE>
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<PAGE>
- --------------------------------------------------------------------------------
ADDRESSES
Massachusetts Municipal Cash Trust
BayFunds Shares
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1119
Boston, Massachusetts 02266
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
SUB-TRANSFER AGENT
Supervised Service Company, Inc.
811 Main Street
Kansas City, Missouri 64105
SHAREHOLDER SERVICING AGENT
BayBank Systems, Inc.
One BayBank Technology Place
Waltham, Massachusetts 02154
LEGAL COUNSEL
Houston, Houston & Donnelly
2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
LEGAL COUNSEL
Dickstein, Shapiro & Morin
2101 L Street, N.W.
Washington, D.C. 20037
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen & Co.
2100 One PPG Place
Pittsburgh, Pennsylvania 15222
BAYFUNDS SHARES
MASSACHUSETTS
MUNICIPAL
CASH TRUST
PROSPECTUS
FEDERATED SECURITIES CORP.
- --------------------------
Distributor MUTUAL
FUNDS AT
BAYBANK
DECEMBER 31, 1993
0032603A-BS (12/93)
MASSACHUSETTS MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
BAYFUNDS SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus for BayFunds Shares of Massachusetts Municipal Cash Trust
(the "Fund") dated December 31, 1993. This Statement is not a
prospectus. To receive a copy of the prospectus, write to the Fund or
call toll-free 1-800-BAYFUND
(1-800-229-3863).
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1993
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Acceptable Investments 1
When-Issued and Delayed
Delivery Transactions 1
Temporary Investments 2
Investment Limitations 2
Massachusetts Investment Risks 4
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
- ---------------------------------------------------------------
Officers and Trustees 5
The Funds 7
Fund Ownership 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 7
- ---------------------------------------------------------------
Adviser to the Fund 7
Advisory Fees 8
ADMINISTRATIVE SERVICES 8
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 8
- ---------------------------------------------------------------
PURCHASING BAYFUNDS SHARES 9
- ---------------------------------------------------------------
Conversion to Federal Funds 9
DETERMINING NET ASSET VALUE 9
- ---------------------------------------------------------------
Use of the Amortized Cost Method 9
REDEEMING BAYFUNDS SHARES 10
- ---------------------------------------------------------------
Redemption in Kind 10
MASSACHUSETTS LAW 10
- ---------------------------------------------------------------
TAX STATUS 11
- ---------------------------------------------------------------
The Fund's Tax Status 11
Massachusetts State Income Tax 11
YIELD 11
- ---------------------------------------------------------------
EFFECTIVE YIELD 11
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 12
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in Federated Municipal Trust (the "Trust"). The Trust
was established as a Massachusetts business trust under a Declaration of Trust
dated September 1, 1989.
Shares of the Fund are offered in two classes known as BayFunds Shares and
Institutional Service Shares. This Statement of Additional Information relates
to the BayFunds Shares ("Shares") of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income which is exempt
from federal regular income tax, and Massachusetts state income tax, consistent
with stability of principal. The investment objective cannot be changed without
approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Massachusetts and of other states, territories, and possessions of the United
States, including the District of Columbia, and any political subdivision or
financing authority of any of these, the income from which is, in the opinion of
qualified legal counsel, exempt from both federal regular income tax and
Massachusetts state income tax imposed upon non-corporate taxpayers.
When determining whether a Massachusetts municipal security presents minimal
credit risks, the investment adviser considers the creditworthiness of the
issuer of the security, the issuer of a demand feature if the Fund has the
unconditional right to demand payment for the security, or the guarantor of
payment by either of those issuers.
If a security loses its rating or the security's rating is reduced below the
required minimum after the Fund purchases it, the Fund is not required to sell
the security. The investment adviser considers this event, however, in its
determination of whether the Fund should continue to hold the security in its
portfolio. If ratings made by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") change because of changes in those
organizations or in their ratings systems, the Fund will try to use comparable
short-term ratings as standards in accordance with the investment policies
described in the Fund's prospectus.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests which represent undivided proportional interests in lease
payments by a governmental or nonprofit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that
the participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they became
due. In the event of a default or failure of appropriation, unless the
participation interests are credit enhanced, it is unlikely that the
participants would be able to obtain an acceptable substitute source of
payment.
Under the criteria currently established by the Board of Trustees
("Trustees"), the Fund's investment adviser must consider the following
factors in determining the liquidity of municipal lease securities: (1)
the frequency of trades and quotes for the security; (2) the volatility
of quotations and trade prices for the security; (3) the number of
dealers willing to purchase or sell the security and the number of
potential purchasers; (4) dealer undertakings to make a market in the
security; (5) the nature of the security and the nature of the
marketplace trades; (6) the rating of the security and the financial
condition and prospects of the issuer of the security; (7) such other
factors as may be relevant to the Fund's abililty to dispose of the
security; (8) whether the lease can be terminated by the lessee; (9) the
potential recovery, if any, from a sale of the leased property upon
termination of the lease; (10) the lessee's general credit strength; (11)
the likelihood that the lessee will discontinue appropriating funding for
the leased property because the property is no longer deemed essential to
its operations; and (12) any credit enhancement or legal recourse
provided upon an event of nonappropriation or other termination of the
lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities connected with the Fund's investment objective and
policies, not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
- --------------------------------------------------------------------------------
No fees or other expenses, other than normal transaction costs, are incurred.
However, assets of the Fund sufficient to make payment for the securities to be
purchased are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
The Fund may engage in these transactions to an extent that would cause the
segregation of an amount up to 20% of the total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in high quality, temporary investments during times of
unusual market conditions for defensive purposes and to maintain liquidity.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale
to repurchase them at a mutually agreed upon time and price within one
year from the date of acquisition. The Fund or its custodian will take
possession of the securities subject to repurchase agreements and these
securities will be marked to market daily. To the extent that the
original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund will only enter
into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's
adviser to be creditworthy, pursuant to guidelines established by the
Trustees.
From time to time, such as when suitable Massachusetts municipal securities are
not available, the Fund may maintain a portion of its assets in cash. Any
portion of the Fund's assets maintained in cash will reduce the amount of assets
in Massachusetts municipal securities and thereby reduce the Fund's yield.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for the
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money in amounts up to one-third of the value of its total assets,
including the amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings in excess of 5% of its total assets are
outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge.
DIVERSIFICATION OF INVESTMENTS
With regard to at least 50% of its total assets, no more than 5% of its
total assets are to be invested in the securities of a single issuer, and
no more than 25% of its total assets are to be invested in the securities
of a single issuer at the close of each quarter of each fiscal year.
Under this limitation, each governmental subdivision, including states,
territories, possessions of the United States or their political
subdivisions, agencies, authorities, instrumentalities, or similar
entities will be considered a separate issuer if its assets and revenues
are separate from those of the governmental body creating it and the
security is backed only by its own assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
nongovernmental issuer are considered to be issued solely by that issuer.
If, in the case of an industrial development bond or government-issued
security, a governmental or other entity guarantees the security, such
guarantee would be considered a separate security issued by the
guarantor, as well as the other issuer, subject to limited exclusions
allowed by the Investment Company Act of 1940.
- --------------------------------------------------------------------------------
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of 1933.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or nonpublicly issued Massachusetts municipal securities or
temporary investments or enter into repurchase agreements in accordance
with its investment objective, policies, and limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of
the value of its total assets in cash or cash items (including
instruments issued by a U.S. branch of a domestic bank or savings and
loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment), securities issued or guaranteed
by the U.S. government, its agencies, or instrumentalities, or
instruments secured by these money market instruments, such as repurchase
agreements.
The above investment limitations cannot be changed without shareholder approval.
The Fund does not consider the issuance of separate classes of shares to involve
the issuance of "senior securities" within the meaning of the investment
limitation set forth above. The following limitations, however, may be changed
by the Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, reorganization, or other
acquisition.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
industrial development bonds or other municipal securities where the
principal and interest are the responsibility of companies (or
guarantors, where applicable) with less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
DEALING IN PUTS AND CALLS
The Fund will not purchase or sell puts, calls, straddles, spreads, or
any combination of them, except that the Fund may purchase municipal
securities accompanied by agreements of sellers to repurchase them at the
Fund's option.
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs or leases.
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INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
securities which are illiquid, including repurchase agreements providing
for settlement in more than seven days after notice, certain restricted
securities not determined by the Trustees to be liquid, and
non-negotiable fixed time deposits with maturities over seven days.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its net assets during the coming fiscal year.
MASSACHUSETTS INVESTMENT RISKS
The Fund invests in obligations of Massachusetts issuers which results in the
Fund's performance being subject to risks associated with the overall economic
conditions present within Massachusetts (the "Commonwealth"). The following
information is a brief summary of the recent prevailing economic conditions and
a general summary of the Commonwealth's financial status. This information is
based on official statements relating to securities that have been offered by
Massachusetts issuers and from other sources believed to be reliable but should
not be relied upon as a complete description of all relevant information.
The Commonwealth has a diverse economy with manufacturing, education, health
care, computers and financial services all being significant contributors.
Massachusetts is generally considered the leader in research and development
within the biotechnology, software and robotics industries as well as having
many highly prestigous universities. In addition to a highly skilled and
educated workforce, the Commonwealth has one of the higher average per capita
incomes in this country.
Throughout the early to mid-1980's Massachusetts had a strong economy which was
evidenced by low unemployment and high personal income growth as compared to
national averages. However, beginning in the late 1980's, economic growth in the
New England region and Massachusetts, in particular, slowed and has shown
pronounced deterioration in the construction, real estate, financial and
manufacturing sectors. Between 1988 and 1992 there has been extensive job losses
that have resulted in a 10% reduction in the work force. In addition, after
years of above average property value growth, property values have decreased an
estimated 6% over the same period.
The two major revenue sources available to cities and towns in Massachusetts are
local property taxes and local aid from the Commonwealth. Property taxes are
subject to limitations imposed by a state-wide initiative approved by the voters
in November, 1980 (commonly known as Proposition 2-1/2), which limits the
property taxes that may be levied by any city or town in any fiscal year to the
lesser of (i) 2.5% of the full valuation of the real estate and personal
property therein or (ii) 2.5% over the previous year's levy limit plus any
growth in the tax base from new construction. In recent years the decrease in
property values due to the recession and the limitations of tax levy growth
imposed by Prop 2-1/2 have resulted in budget constraints for many cities and
towns.
The overall financial condition of the Commonwealth can also be illustrated by
the changes of its debt ratings. During the period in which the Commonwealth has
experienced its financial difficulties beginning in 1988, its general obligation
long-term debt ratings as determined by Moody's and S&P decreased from Aa and
AA+, respectively, to a low of Baa and BBB. Over the past year the Commonwealth
has had its debt ratings raised by the two rating agencies to A and A+ (Moody's
and S&P) reflecting its improved fiscal performance.
The Fund's concentration in securities issued by the Commonwealth and its
political subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities. The ability of the
Commonwealth or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political, and demographic
conditions within the Commonwealth; and the underlying fiscal condition of the
Commonwealth and its municipalities.
FEDERATED MUNICIPAL TRUST MANAGEMENT
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OFFICERS AND TRUSTEES
Trustees and officers are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Management,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, Inc., and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue\* Chairman Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Tower and Trustee Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer and
Director, Trustee, or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company. Mr. Donahue is the father
of
J. Christopher Donahue, Vice President of the Trust.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President,
Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate
Department Village Development Corporation; General Partner or Trustee in private
John R. Wood and real estate ventures in Southwest Florida; Director, Trustee or Managing
Associates, Inc., General Partner of the Funds; formerly, President, Naples Property
Realtors Management, Inc.
3255 Tamiami Trail North
Naples, FL
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza-- Director, Trustee, or Managing General Partner of the Funds; formerly,
23rd Floor Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Pittsburgh, PA Director, Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director,
Concord, MA Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Glen R. Johnson* President and Trustee, Federated Investors; President and/or Trustee of some of the
Federated Investors Tower Trustee Funds; staff member, Federated Securities Corp., and Federated
Pittsburgh, PA Administrative Services, Inc.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly,
Boston, MA President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
</TABLE>
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<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer
Learning Library Center, Inc. and U.S. Space Foundation; Chairman; Czecho Slovak
University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee,
Federated Investors Tower Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Trustee, Federated Services Company; President and Director, Federated
Administrative Services, Inc.; President or Vice President of the Funds;
Director, Trustee or Managing General Partner of some of the Funds. Mr.
Donahue is the son of John F. Donahue, Chairman and Trustee of the
Trust.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director, Federated Securities Corp.; President or Vice President of the
Pittsburgh, PA Funds; Director or Trustee of some of the Funds.
Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice
Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Trustee, Federated Services Company; Executive Vice
President, Treasurer, and Director, Federated Securities Corp.;
Chairman, Treasurer, and Director, Federated Administrative Services and
Federated Administrative Services, Inc.; Trustee or Director of some of
the Funds; Vice President and Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee,
Federated Investors Tower and Secretary Federated Investors; Vice President, Secretary and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Trustee,
Federated Services Company; Executive Vice President, Secretary, and
Director, Federated Administrative Services and Federated Administrative
Services, Inc.; Director and Executive Vice President, Federated
Securities Corp.; Vice President and Secretary of the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and
Federated Research; Vice President of the Funds; Director, Trustee, or
Managing General Partner of some of the Funds; formerly, Vice President,
The Standard Fire Insurance Company and President of its Federated
Research Division.
</TABLE>
*This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940, as amended.
\Member of the Trust's Executive Committee. The Executive Committee handles the
responsibilities of the Trustees between meetings of the Board.
- --------------------------------------------------------------------------------
THE FUNDS
The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Automated Cash Management
Trust; Automated Government Money Trust; The Boulevard Funds; California
Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor
Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund;
Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust;
Federated Growth Trust; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated Municipal Trust; Federated
Short-Intermediate Government Trust; Federated Short-Intermediate Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority
Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government
Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
FT Series, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities
Fund, Inc.; Liberty Term Trust, Inc.--1999; Liberty U.S. Government Money Market
Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark Twain Funds; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran
Funds; The Passageway Funds; The Planters Funds; Portage Funds; RIMCO Monument
Funds; The Shawmut Fund; Short-Term Municipal Trust; Signet Select Funds; Star
Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.;
Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark
Funds; Trust for Financial Institutions; Trust for Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; and Trust for U.S. Treasury
Obligations.
FUND OWNERSHIP
Officers and Trustees, as a group, own more than 1% of the Fund's outstanding
Shares as of November 29, 1993..
As of November 29, 1993, the following shareholder of record owned 5% or more of
the outstanding BayFunds Shares of the Fund: John & Company, Burlington,
Massachusetts, owned approximately 20,423,104 Shares (99.99%).
As of November 29, 1993, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of the Fund: State Street Bank
and Trust Company, North Quincy, Massachusetts, owned approximately 28,909,810
Shares (33.66%); John & Company, Burlington, Massachusetts, owned approximately
20,932,775 Shares (24.37%); and Scaup & Company, Boston, Massachusetts, owned
approximately 12,466,302 (14.51%).
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management (the "Adviser"), a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, his wife, and his son, J. Christopher Donahue. John F. Donahue is
Chairman and Trustee, Federated Management; Chairman and Trustee, Federated
Investors; and Chairman and Trustee of the Trust. John A. Staley, IV, is
President and Trustee, Federated Management; Vice President and Trustee,
Federated Investors; Executive Vice President, Federated Securities Corp.; and
Vice President of the Trust. J. Christopher Donahue is Trustee, Federated
Management; President and Trustee, Federated Investors; President and Director,
Federated Administrative Services, Inc.; Trustee, Federated Services Company;
and Vice President of the Trust. John W. McGonigle is Vice President, Secretary,
and Trustee, Federated Management; Trustee, Vice President, Secretary, and
General Counsel, Federated Investors; Director, Executive Vice President, and
Secretary, Federated Administrative Services, Inc.; Director and Executive Vice
President, Federated Securities Corp.; Trustee, Federated Services Company, and
Vice President and Secretary of the Trust.
The Adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
- --------------------------------------------------------------------------------
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
October 31, 1993, 1992, and 1991, the Fund's adviser earned $498,975, $445,783,
and $379,567, respectively of which $427,232, $445,783, and $379,567,
respectively, were voluntarily waived because of undertakings to limit the
Fund's expenses.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the Adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund at approximate cost.
For the fiscal years ended October 31, 1993, 1992, and 1991, the Fund incurred
costs for administrative services of $253,380, $197,636, and $194,694,
respectively. John A. Staley, IV, an officer of the Trust, and Dr. Henry J.
Gailliot, an officer of Federated Management, the adviser to the Fund, hold
approximately 15% and 20%, respectively, of the outstanding common stock and
serve as directors of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services, Inc. For the
fiscal years ended October 31, 1993, 1992, and 1991, Federated Administrative
Services, Inc. paid approximately $165,431, $189,741, and $187,677,
respectively, for services provided by Commercial Data Services, Inc.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising Federated funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING BAYFUNDS SHARES
- --------------------------------------------------------------------------------
Investors may purchase Shares of the Fund on days on which the New York Stock
Exchange and the Federal Reserve Bank of Boston are open for business. The
procedure for purchasing Shares is explained in the prospectus under "Investing
in BayFunds Shares."
- --------------------------------------------------------------------------------
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
Federal funds or be converted into Federal funds. The Shareholder Servicing
Agent (as defined in the prospectus) acts as the shareholder's agent in
depositing checks and converting them to Federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party on (1) no more than 30 days' notice or (2) specified
intervals not exceeding thirteen months on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same-day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
Although demand features and standby commitments are techniques and are defined
as "puts" under the Rule, the Fund does not consider them to be "puts" as that
term is used in the Fund's investment limitations. Demand features and standby
commitments are features which enhance an instrument's liquidity, and the
investment limitation which proscribes puts is designed to prohibit the purchase
and sale of put and call options and is not designed to prohibit the Fund from
using techniques which enhance the liquidity of portfolio instruments.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.5% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risk and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than 397 days can be
purchased by the Fund. For a discussion of the treatment of variable rate
municipal securities with demand features, refer to "Variable Rate Demand
Notes" in the prospectus.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash so as to reduce the average maturity to 90
days or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on Shares of
the Fund, computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above, may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
- --------------------------------------------------------------------------------
In periods of rising interest rates, the indicated daily yield on Shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING BAYFUNDS SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request from the Transfer Agent in proper form.
Redemption procedures are explained in the prospectus under "Redeeming BayFunds
Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To the extent available,
such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940 which obligates the Fund to redeem shares for any one shareholder in
cash only up to the lesser of $250,000 or 1% of the net asset value of the
respective class during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
MONTHLY STATEMENTS
Shareholders of the Fund who have eligible BayBanks deposit accounts will
receive combined monthly statements containing all information relating
to their deposit account(s) and BayFunds transactions.
COMPANION ACCOUNT AVAILABILITY
Certain BayBanks deposit account customers may elect to open a companion
BayFunds account to facilitate BayFunds transactions.
MASSACHUSETTS LAW
- --------------------------------------------------------------------------------
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for obligations of the Trust. To protect shareholders, the
Trust has filed legal documents with Massachusetts that expressly disclaim the
liability of shareholders for acts or obligations of the Trust. These documents
require notice of this disclaimer to be given in each agreement, obligation, or
instrument that the Trust or its Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
MASSACHUSETTS STATE INCOME TAX
Individual shareholders of the Fund who are subject to Massachusetts income
taxation will not be required to pay Massachusetts income tax on that portion of
their dividends which are attributable to: interest earned on Massachusetts
tax-free municipal obligations; gain from the sale of certain of such
obligations; and interest earned on obligations of United States territories or
possessions, to the extent interest on such obligations is exempt from taxation
by the state pursuant to federal law. All remaining dividends will be subject to
Massachusetts income tax.
If a shareholder of the Fund is a Massachusetts business corporation or any
foreign business corporation which exercises its charter, qualifies to do
business, actually does business or owns or uses any part of its capital, plant
or other property in Massachusetts, then it will be subject to Massachusetts
excise taxation either as a tangible property corporation or as an intangible
property corporation. If the corporate shareholder is a tangible property
corporation, it will be taxed upon its net income allocated to Massachusetts and
the value of certain tangible property. If it is an intangible property
corporation, it will be taxed upon its net income and net worth allocated to
Massachusetts. Net income is gross income less allowable deductions for federal
income tax purposes, subject to specified modifications. Dividends received from
the Fund are includable in gross income and generally may not be deducted by a
corporate shareholder in computing its net income. The corporation's shares in
the Fund are not includable in the computation of the tangible property base of
a tangible property corporation, but are includable in the computation of the
net worth base of an intangible property corporation.
Shares of Massachusetts Municipal Cash Trust will be exempt from local property
taxes in Massachusetts.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for BayFunds Shares for the seven-day period ended October 31,
1993 was 1.88%. The yield for Institutional Service Shares was 1.98% for the
same period.
The Fund calculates the yield for both classes of shares daily, based upon the
seven days ending on the day of the calculation, called the "base period." This
yield is computed by:
determining the net change in the value of a hypothetical account with a balance
of one share at the beginning of the base period, with the net change excluding
capital changes but including the value of any additional shares purchased with
dividends earned from the original one share and (on funds that pay dividends
daily) all dividends declared on the original and any purchased shares;
dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any class
of shares, the performance will be reduced for those shareholders paying those
fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Fund's effective yield for BayFunds Shares for the seven-day period ended
October 31, 1993 was 1.89%.The effective yield for Institutional Service Shares
was 2.00% for the same period.
The Fund's effective yield for both classes of Shares is computed by compounding
the unannualized base period return by:
adding 1 to the base period return;
raising the sum to the 365/7th power; and
subtracting 1 from the result.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of Shares depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates on money market instruments;
changes in the Fund's or any class of Shares' expenses; and
the relative amount of Fund cash flow.
From time to time, the Fund may advertise the performance of BayFunds Shares
compared to similar funds or portfolios using certain indices, reporting
services, and financial publications. These may include the following:
LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "money market
funds" category in advertising and sales literature.
Investors may use such services in addition to the prospectus of BayFunds shares
to obtain a more complete view of the class's performance before investing. Of
course, when comparing performance of BayFunds Shares, factors such as portfolio
composition and prevailing market conditions should be considered in assessing
the significance of such comparisons.
When comparing funds using reporting services, or total return and yield,
investors should take into consideration any relevant differences in funds such
as permitted portfolio composition and methods used to value portfolio
securities and compute offering price.
Advertisements and other sales literature for BayFunds Shares may refer to total
return. Total return is the historic change in the value of an investment in
BayFunds Shares based on the monthly reinvestment of dividends over a specified
period of time.
0032603B-BS (12/93)
MINNESOTA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH SERIES SHARES
PROSPECTUS
The Cash Series Shares of Minnesota Municipal Cash Trust (the "Fund") offered by
this prospectus represent interests in a non-diversified portfolio of securities
which is one of a series of investment portfolios in Federated Municipal Trust
(the "Trust"), an open-end management investment company (a mutual fund). The
investment objective of the Fund is to provide current income exempt from
federal regular income tax and the regular personal income taxes imposed by the
State of Minnesota consistent with stability of principal. The Fund invests
primarily in short-term Minnesota municipal securities. The Fund invests
primarily in short-term Minnesota municipal securities, including securities of
states, territories, and possessions of the United States, which are not issued
by or on behalf of the State of Minnesota or its political subdivisions and
financing authorities, which are exempt from the federal regular income tax and
the regular personal income taxes imposed by the State of Minnesota. Cash Series
Shares are sold at net asset value, without a sales load.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THE CASH SERIES SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in Cash Series Shares. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for Cash
Series Shares and Institutional Shares dated December 31, 1993, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference in this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or make inquiries about the Fund contact the Fund at the address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 31, 1993
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
CASH SERIES SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 4
Variable Rate Demand Notes 4
Participation Interests 4
Municipal Leases 4
Ratings 4
Credit Enhancement 5
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed
Delivery Transactions 5
Temporary Investments 5
Minnesota Municipal Securities 6
Standby Commitments 6
Minnesota Investment Risks 7
Non-Diversification 7
Investment Limitations 7
Regulatory Compliance 8
FEDERATED MUNICIPAL TRUST INFORMATION 8
- ------------------------------------------------------
Management of Federated Municipal Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Cash Series Shares 9
Distribution Plan 9
Administrative Arrangements 10
Administration of the Fund 10
Administrative Services 10
Custodian 10
Transfer Agent and
Dividend Disbursing Agent 10
Legal Counsel 10
Independent Public Accountants 10
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN CASH SERIES SHARES 11
- ------------------------------------------------------
Share Purchases 11
Through a Financial Institution 11
Directly from the Distributor 11
Minimum Investment Required 11
What Shares Cost 11
Systematic Investment Program 12
Automatic Investments 12
Subaccounting Services 12
Certificates and Confirmations 12
Dividends 12
Capital Gains 13
REDEEMING CASH SERIES SHARES 13
- ------------------------------------------------------
Through a Financial Institution 13
Receiving Payment 13
By Check 13
By Wire 13
Directly from the Fund 14
By Mail 14
Signatures 14
Checkwriting 14
VISA Card 14
Redemption Before Purchase
Instruments Clear 15
Accounts with Low Balances 15
SHAREHOLDER INFORMATION 15
- ------------------------------------------------------
Voting Rights 15
Massachusetts Partnership Law 15
TAX INFORMATION 16
- ------------------------------------------------------
Federal Income Tax 16
Minnesota Tax Considerations 17
Other State and Local Taxes 17
PERFORMANCE INFORMATION 17
- ------------------------------------------------------
OTHER CLASSES OF SHARES 18
- ------------------------------------------------------
Financial Highlights--
Institutional Shares 19
FINANCIAL STATEMENTS 20
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 37
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH SERIES SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................ None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................................................. None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee........................................................................................... None
ANNUAL CASH SERIES SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)...................................................................... 0.06%
12b-1 Fee (after waiver) (2)........................................................................... 0.40%
Other Expenses......................................................................................... 0.25%
Total Cash Series Shares Operating Expenses (3).............................................. 0.71%
</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 12b-1 fee is 0.50%.
(3) The Total Cash Series Shares Operating Expenses would have been 1.15% absent
the voluntary waiver of a portion of the management fee and a portion of the
12b-1 fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CASH SERIES SHARES OF THE FUND
WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN CASH SERIES SHARES" AND "FEDERATED
MUNICIPAL TRUST INFORMATION." Wire-transferred redemptions of less than $5,000
may be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc. ("NASD"). However, in order for a Cash
Series Share investor to exceed the NASD's maximum front-end sales charge of
6.25%, a continuous investment in the Cash Series Shares of the Fund for 42
years would be required.
<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. As noted in the table above, the Fund charges no redemption
fee for Cash Series Shares............................................ $7 $23 $40 $88
</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.
The information set forth in the foregoing table and example relates only
to Cash Series Shares of the Fund. The Fund also offers another class of shares
called Institutional Shares. Cash Series Shares and Institutional Shares are
subject to certain of the same expenses; however, Institutional Shares are not
subject to a 12b-1 fee. See "Other Classes of Shares."
MINNESOTA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--CASH SERIES SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 37.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1993 1992 1991*
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------
Net investment income 0.02 0.03 0.04
- ----------------------------------------------------------------------------------- --------- --------- ---------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.03) (0.04)
- ----------------------------------------------------------------------------------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------- --------- --------- ---------
TOTAL RETURN** 2.02% 2.78% 3.60%(a)
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------
Expenses 0.71% 0.71% 0.64%(b)
- -----------------------------------------------------------------------------------
Net investment income 2.01% 2.75% 4.11%(b)
- -----------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.44% 0.44% 0.59%(b)
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $67,521 $75,044 $69,747
- -----------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from January 7, 1991 (date of initial
public investment) to October 31, 1991.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) The voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Trustees ("Trustees") have established two classes of
shares, known as Cash Series Shares and Institutional Shares. This prospectus
relates only to Cash Series Shares of the Fund.
Cash Series Shares ("Shares") of the Fund are designed primarily for the retail
customers of financial institutions. A minimum initial investment of $10,000
over a 90-day period is required. The Fund may not be a suitable investment for
non-Minnesota taxpayers or retirement plans since it invests primarily in
Minnesota municipal securities.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal regular income tax and the regular personal income taxes imposed by the
State of Minnesota consistent with stability of principal. The investment
objective cannot be changed without approval of shareholders. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than Minnesota.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of Minnesota municipal securities with remaining maturities of 13 months or less
at the time of purchase by the Fund. As a matter of investment policy which
cannot be changed without the approval of shareholders, the Fund invests its
assets so that: (1) at least 80% of its annual interest income is exempt from
federal regular income tax and Minnesota regular personal income tax ("exempt
interest dividends") and (2) at least 95% of the exempt interest dividends that
the Fund pays to its shareholders will derive from interest income from
Minnesota municipal securities. The remaining 5% of such exempt interest
dividends paid to shareholders will derive either from interest income on
Minnesota municipal securities or interest income which is exempt from both
federal regular and Minnesota regular personal income taxes. The average
maturity of the securities in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the
investment policies may be changed by the Trustees without the approval of
shareholders. Shareholders will be notified before any material changes in these
policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued
by or on behalf of Minnesota and its political subdivisions and financing
authorities, and obligations of other states, territories and possessions of the
United States, including the District of Columbia, and any political subdivision
or financing authority of any of these, the income from which is, in the opinion
of qualified legal counsel, exempt from both federal regular income tax and
Minnesota state income tax imposed upon non-corporate taxpayers. Examples of
Minnesota municipal securities include, but are not limited to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
municipal securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven day's prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS. The Fund may purchase interests in municipal
securities from financial institutions such as commercial and investment
banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying municipal securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and may be considered to be illiquid. They may take the form
of a lease, an installment purchase contract, a conditional sales contract,
or a participation certificate on any of the above.
RATINGS. The Minnesota municipal securities in which the Fund invests must
either be rated in one of the two highest short-term rating categories by one or
more nationally recognized statistical rating organizations ("NRSROs") or be of
comparable quality to securities having such ratings. An NRSRO's two highest
rating categories are determined without regard for sub-categories and
gradations. For
example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation
("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or
FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service, Inc. ("Fitch") are all
considered rated in one of the two highest short-term rating categories. The
Fund will follow applicable regulations in determining whether a security rated
by more than one NRSRO can be treated as being in one of the two highest
short-term rating categories; currently, such securities must be rated by two
NRSROs in one of their two highest categories. See "Regulatory Compliance."
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit-enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit-enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
The Fund may have more than 25% of its total assets invested in securities
credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Trustees, certain restricted securities are considered to be
liquid. To the extent restricted securities are deemed to be illiquid, the Fund
will limit their purchase, together with other securities considered to be
illiquid, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Minnesota
municipal securities on a when-issued or delayed delivery basis. In when-issued
and delayed delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term, non-Minnesota municipal
tax-exempt obligations or other taxable, temporary investments. All temporary
investments will satisfy the same credit quality standards as the Fund's
acceptable investments. See "Ratings" above. Temporary investments include:
notes issued by or on behalf of municipal or corporate issuers; marketable
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; and repurchase agreements (arrangements in which banks,
broker/dealers, and other recognized financial
institutions sell the Fund a temporary investment and agree to repurchase it at
a mutually agreed upon time and price).
Although the Fund is permitted to make taxable temporary investments, there is
no current intention of generating income subject to federal regular income tax
or Minnesota state regular personal income tax.
MINNESOTA MUNICIPAL SECURITIES
Minnesota municipal securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Minnesota municipal securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS
Some securities dealers are willing to sell municipal securities to the Fund
accompanied by their commitments to repurchase the municipal securities prior to
maturity, at the Fund's option, for the amortized cost of the municipal
securities at the time of repurchase. These arrangements are not used to protect
against changes in the market value of municipal securities. They permit the
Fund, however, to remain fully invested and still provide liquidity to satisfy
redemptions. The cost of municipal securities accompanied by these "standby"
commitments could be greater than the cost of municipal securities without such
commitments. Standby commitments are not marketable or otherwise assignable and
have value only to the Fund. The default or bankruptcy of a securities dealer
giving such a commitment would not affect the quality of the municipal
securities purchased. However, without a standby commitment, these securities
could be more difficult to sell. The Fund enters into standby commitments only
with those dealers whose credit the investment adviser believes to be of high
quality.
MINNESOTA INVESTMENT RISKS
Yields on Minnesota municipal securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the State of Minnesota or its
municipalities could impact the Fund's portfolio. Minnesota escaped the worst
part of the recent national economic downturn largely due to the diversified
nature of the state's economy. State-wide unemployment remains below the
national level and personal income growth continues to reflect favorable
economic conditions. Generally, growth in the state should lag behind the nation
over the next several years as
the economy rebounds. The ability of the Fund to achieve its investment
objective also depends on the continuing ability of the issuers of Minnesota
municipal securities and demand features for such securities, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. Investing in Minnesota municipal securities which meet the
Fund's quality standards may not be possible if the State of Minnesota or its
municipalities do not maintain their high quality, short-term credit ratings. An
expanded discussion of the current economic risks associated with the purchase
of Minnesota municipal securities is contained in the Combined Statement of
Additional Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified investment portfolio because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, with
regard to at least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following limitation, however, can be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not invest more than 5% of its total assets in industrial
development bonds or other municipal securities when the payment of principal
and interest is the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations, including the
operation of any predecessor.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Combined Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which regulates
money market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF FEDERATED MUNICIPAL TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of
Trustees is responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for the voluntary waiver of the advisory
fee by the adviser, the adviser may voluntarily waive some or all of the
advisory fee. This does not include reimbursement to the Fund of any
expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The adviser can terminate this voluntary waiver
of expenses at any time at its sole discretion. The adviser has also
undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
DISTRIBUTION OF CASH SERIES SHARES
Federated Securities Corp. is the principal distributor for Cash Series Shares
of the Fund. It is a Pennsylvania corporation organized on November 14, 1969,
and is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund
will pay to the distributor an amount computed at an annual rate of .50 of 1% of
the average daily net asset value of the Shares to finance any activity which is
principally intended to result in the sale of Shares subject to the Plan.
The distributor may from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the Shares exceed such lower expense limitation as
the distributor may, by notice to the Trust, voluntarily declare to be
effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("brokers")
to provide sales and/or administrative services as agents for their clients or
customers who beneficially own Shares of the Fund. Administrative services may
include, but are not limited to, the following functions: providing office
space, equipment, telephone facilities, and various clerical, supervisory,
computer and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding the Shares; assisting clients in
changing dividend options, account designations, and addresses; and providing
such other services as the Fund reasonably requests for Shares.
Financial institutions will receive fees from the distributor based upon Shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no payments
to the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATIVE ARRANGEMENTS. In addition to the fees paid by the distributor to
financial institutions under the Plan as described above, the distributor may
also pay financial institutions a fee with respect to the average daily net
asset value of Shares held by their customers for providing administrative
services. The rate of such fee will be determined by the average net asset value
of the shares held by their customers in the Cash Series classes of the Trust
and Cash Trust Series, another registered investment company distributed by
Federated Securities Corp. This fee is in addition to amounts paid under the
Plan and, if paid, will be reimbursed by the adviser and not the Fund.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary
of Federated Investors, provides the Fund with the administrative personnel and
services necessary to operate the Fund and the separate classes. Such services
include shareholder servicing and certain legal and accounting services.
Federated Administrative Services, Inc. provides these at approximate cost.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per Share is determined by adding the interest of the Shares in the value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in liabilities of the Fund and those attributable to Shares, and dividing the
remainder by the total number of Shares outstanding.
The Fund, of course, cannot guarantee that its net asset value will always
remain at $1.00 per Share.
INVESTING IN CASH SERIES SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open for business. Shares may be purchased through a
financial institution which has a sales agreement with the distributor or
directly from the distributor, Federated Securities Corp. The Fund reserves the
right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders through a financial institution are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Shares directly from the distributor. To do so: complete and sign the new
account form available from the Fund; enclose a check payable to Minnesota
Municipal Cash Trust--Cash Series Shares; and mail both to Minnesota Municipal
Cash Trust, P.O. Box 8604, Boston, Massachusetts 02266-8604. The order is
considered
received when payment by check is converted by State Street Bank and Trust
Company into federal funds. This is normally the next business day after State
Street Bank receives the check.
To purchase Shares by Federal Reserve wire, call the Fund before 1:00 p.m.
(Eastern time) to place an order. The order is considered received immediately.
Payment by federal funds must be received before 3:00 p.m. (Eastern time) that
same day. Federal funds should be wired as follows: State Street Bank and Trust
Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to: Minnesota
Municipal Cash Trust--Cash Series Shares; Fund Number (this number can be found
on the account statement or by contacting the Fund); Group Number or Order
Number; Title or Name of Account; an ABA Number 011000028. Shares cannot be
purchased by wire on days on which the New York Stock Exchange is closed and on
federal holidays restricting wire transfers.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Shares is $10,000. However, an account may
be opened with a smaller amount as long as the $10,000 minimum is reached within
90 days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund. Individual accounts
established through a bank or broker may be subject to a different minimum
investment requirement.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a bank or broker may be charged an additional service fee by that
bank or broker.
The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, shareholders may add to their investment on a
regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Shares. A shareholder may apply for participation in this program
through his financial institution.
AUTOMATIC INVESTMENTS
Investors may wish to establish accounts with their brokers or administrators to
have automatic investments made to the Fund. The investments may be made on
predetermined dates or when the investor's account reaches a certain level.
Participating brokers or administrators are responsible for prompt transmission
of orders relating to the program; however, they may charge for this service and
other services. Investors should read this prospectus in connection with any
broker's or administrator's agreement or literature describing these services
and fees.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Financial
institutions holding Shares in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the financial institution with regard to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the day after the check is converted, upon
instruction of the transfer agent, into federal funds. Dividends are
automatically reinvested on payment dates in additional Shares unless cash
payments are requested on an application or by contacting the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses,
if any, could result in a decrease in dividends. If, for some extraordinary
reason, the Fund realizes net long-term or short-term capital gains, it will
distribute them at least once every 12 months.
REDEEMING CASH SERIES SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemptions can be made through a financial
institution or directly from the Fund. Redemption requests must be received in
proper form.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares by calling his/her financial institution (such
as a bank or an investment dealer) to request the redemption. Shares will be
redeemed at the net asset value next determined after State Street Bank receives
the redemption request from the financial institution. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions to the Fund. The financial institution may
charge customary fees and commissions for this service. If, at any time, the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders will be promptly notified.
An authorization form permitting the Fund to accept redemption requests by
telephone must first be completed. Authorization forms and information on this
service are available from Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, shareholders may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as By Mail, should be considered.
RECEIVING PAYMENT. Pursuant to instructions from the financial institution,
redemptions will be made by check or by wire.
BY CHECK. Normally, a check for the proceeds is mailed within one business
day, but in no event more than seven days, after receipt of a proper
redemption request, provided that the transfer agent has received payment
for the Shares from the shareholder. Dividends are paid up to and including
the day that a redemption request is processed.
BY WIRE. Proceeds for redemption requests received before 12:00 noon
(Eastern time) will be wired the same day but will not be entitled to that
day's dividend. Redemption requests received after 12:00 noon (Eastern
time) will receive that day's dividends and will be wired the following
business day.
DIRECTLY FROM THE FUND
BY MAIL. Any shareholder may redeem Shares by sending a written request to
State Street Bank. The written request should include the shareholder's name,
the Fund name and class of shares, the account number, and the Share or dollar
amount requested. If Share certificates have been issued, they must be properly
endorsed and should be sent by registered or certified mail with the written
request. Shareholders should call the Fund for assistance in redeeming by mail.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request. Dividends are paid up to and including the day that a redemption
request is processed.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
CHECKWRITING. At the shareholder's request, State Street Bank will establish a
checking account for redeeming Shares. For further information, contact
Federated Securities Corp.
A fee may be charged for this service. With a Fund checking account, Shares may
be redeemed simply by writing a check. The redemption will be made at the net
asset value on the date that State Street Bank presents the check to the Fund. A
check may not be written to close an account. If a shareholder wishes to redeem
Shares and have the proceeds available, a check may be written and negotiated
through the shareholder's bank. Checks should never be sent to State Street Bank
to redeem Shares. Cancelled checks are returned to the shareholder each month.
VISA CARD. At the shareholder's request, State Street Bank will establish a
VISA account. The VISA account allows a shareholder to redeem Shares by using a
VISA card. A fee determined by State Street Bank will be charged to the account
for this service. For further information, contact Federated Securities Corp.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, the proceeds from the redemption, those
Shares are not available, and the Shares may not be exchanged, until the Fund or
its agents are reasonably certain that the purchase check has cleared, which
could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $10,000 due to
shareholder redemptions.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of all series of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed
legal documents with Massachusetts that expressly disclaim the liability of
shareholders for such acts or obligations of the Trust. These documents require
notice of this disclaimer to be given in each agreement, obligation, or
instrument that the Trust or its Trustees enter into or sign.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, currently equal to up to 28% of alternative minimum
taxable income for individuals and 20% for corporations, applies when it exceeds
the regular tax for the taxable year. Alternative minimum taxable income is
equal to the regular taxable income of the taxpayer increased by certain "tax
preference" items not included in regular taxable income and reduced by only a
portion of the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's "adjusted current earnings" over the taxpayer's
alternative minimum taxable income as a tax preference item. "Adjusted current
earnings" is based upon the concept of a corporation's "earnings and profits."
Since "earnings and profits" generally includes the full amount of any Fund
dividend, and alternative minimum taxable income does not include the
portion of the Fund's dividend attributable to municipal bonds which are not
private activity bonds, 75% of the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
MINNESOTA TAX CONSIDERATIONS
Dividends paid by the Fund to shareholders will be exempt from the Minnesota
regular personal income tax to the extent that (i) such dividends qualify as
exempt interest dividends under the Internal Revenue Code; and (ii) 95% of such
dividends are derived from interest on obligations issued by the State of
Minnesota or any of its political or governmental subdivisions, municipalities,
or governmental agencies or instrumentalities ("Minnesota municipal
obligations"). Even if the Fund does derive 95% of exempt interest dividends
from interest income on Minnesota municipal obligations, shareholders could
potentially be liable for Minnesota regular personal income tax to the extent
that the remaining exempt interest dividends paid to them are derived from
sources of income not exempt from Minnesota regular personal income tax.
Dividends of the Fund are not exempt from the Minnesota income taxes payable by
corporations. Minnesota only includes tax exempt interest from private activity
bonds as a tax preference item for purposes of its alternative minimum tax.
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from regular state income taxes in
states other than Minnesota or from personal property taxes. State laws differ
on this issue and shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield, effective yield,and
tax-equivalent yield for Cash Series Shares.
The yield of Cash Series Shares represents the annualized rate of income earned
on an investment in Cash Series Shares over a seven-day period. It is the
annualized dividends earned during the period on the investment, shown as a
percentage of the investment. The effective yield is calculated similarly to the
yield, but, when annualized, the income earned by an investment in Cash Series
Shares is assumed to be reinvested daily. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield of Cash Series Shares is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that Cash
Series Shares would have had to earn to equal their actual yield, assuming a
specific tax rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Cash Series Shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
Yield, effective yield, and tax-equivalent yield will be calculated separately
for Cash Series Shares and Institutional Shares. Because Cash Series Shares are
subject to 12b-1 fees, the yield, the effective yield,
and thetax-equivalent yield for Institutional Shares will exceed the yield, the
effective yield, and the tax-equivalent yield for Cash Series Shares for the
same period.
From time to time, the Fund may advertise the performance of Cash Series Shares
using certain reporting services and/or compare the performance of Cash Series
Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Shares are sold to accounts for which financial institutions act
in a fiduciary capacity. Institutional Shares are sold at net asset value and
are subject to a minimum initial investment of $25,000. Institutional Shares are
not sold pursuant to a 12b-1 Plan.
Financial institutions and brokers providing sales and administrative services
may receive different compensation depending upon which class of shares of the
Fund is sold. The distributor may pay an administrative fee to a financial
institution or broker for administrative services provided to the Institutional
Shares class and may pay such a fee for administrative services provided to the
Cash Series Shares class, in addition to fees paid pursuant to the 12b-1 Plan.
Any fee paid by the distributor for administrative services will not be an
expense of the class, but will be reimbursed to the distributor by the
investment adviser.
The amount of dividends payable to Institutional Shares will exceed that of Cash
Series Shares by the difference between class expenses and distribution expenses
borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
MINNESOTA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 37.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C>
1993 1992 1991 1990*
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
Net investment income 0.02 0.03 0.05 0.01
- ------------------------------------------------------------------------ --------- --------- --------- ---------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.03) (0.05) (0.01)
- ------------------------------------------------------------------------ --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------ --------- --------- --------- ---------
TOTAL RETURN** 2.43% 3.19% 4.89% 0.90%(a)
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
Expenses 0.31% 0.31% 0.30% 0.01%(b)
- ------------------------------------------------------------------------
Net investment income 2.40% 3.10% 4.73% 6.45%(b)
- ------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.34% 0.33% 0.43% 0.69%(b)
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted) $165,865 $245,168 $124,603 $75,904
- ------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from September 10, 1990 (date of initial
public investment) to October 31, 1990.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) The voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT ISSUE (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--100.2%
- -----------------------------------------------------------------------------------
MINNESOTA--99.3%
-------------------------------------------------------------------
$ 5,000,000 Anoka City, MN, 2.75% CP Solid Waste Disposal Authority (United
Power Associates)/(NRUCFC Guaranty)/(Subject to AMT), Mandatory
Tender
12/14/93 A-1 $ 5,000,000
-------------------------------------------------------------------
3,175,000 Anoka-Hennepin, MN, ISD Pound11, 3.00% GO Bonds,
2/1/94 NR(3) 3,175,000
-------------------------------------------------------------------
3,750,000 Austin, MN, ISD Pound492, 3.15% (State of Minnesota Guaranty),
9/30/94 NR(2) 3,756,614
-------------------------------------------------------------------
5,000,000 Bass Brook, MN, PCR, 2.55% CP (Minnesota Power & Light
Company)/(Mellon Bank N.A. LOC), 11/9/93 P-1 5,000,000
-------------------------------------------------------------------
1,300,000 Becker County, MN, 2.90% GO Bonds (Series 1993),
12/6/93 NR(3) 1,300,000
-------------------------------------------------------------------
4,000,000 Becker, MN, 3.00% GO BANs (Series 1993),
10/1/94 MIG1 4,000,000
-------------------------------------------------------------------
5,000,000 Becker, MN, PCR, 2.60% CP (Series 1992A)/(Northern States Power
Company Guaranty), Mandatory Tender
4/14/94 A-1+ 5,000,000
-------------------------------------------------------------------
4,000,000 Becker, MN, PCR, 2.70% CP (Series 1993A and 1993B)/ (Northern
States Power Company Guaranty), Mandatory Tender 3/22/94 A-1+ 4,000,000
-------------------------------------------------------------------
9,500,000 Bloomington, MN, 2.84% TANs ISD Pound271, 2/23/94 NR(2) 9,502,581
-------------------------------------------------------------------
5,000,000 Bloomington, MN, Multi-Family Housing, Weekly VRDNs
(Crow/Bloomington Apartments)/(Citibank N.A. LOC) P-1 5,000,000
-------------------------------------------------------------------
3,850,000 Burnsville Eagan-Savage, ISD Pound191 MN, 2.66% GO TANs (Series
93), 3/30/94 NR(3) 3,850,600
-------------------------------------------------------------------
8,265,000 Burnsville, MN, Multi-Family Housing Weekly VRDNs (Berkshire of
Burnsville)/(Sumitomo Trust & Banking, Corp., Ltd. LOC) A-2 8,265,000
-------------------------------------------------------------------
1,000,000 Byron, MN, IDB Weekly VRDNs (Schmidt Printing, Inc.)/ (Norwest Bank
Minnesota LOC)/(Subject to AMT) A-1+ 1,000,000
-------------------------------------------------------------------
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT ISSUE (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
MINNESOTA--CONTINUED
-------------------------------------------------------------------
$ 1,380,000 Chaska, MN, IDA Weekly VRDNs (Aeration Industries)/ (Norwest Bank
Minnesota LOC)/(Subject to AMT) A-1+ $ 1,380,000
-------------------------------------------------------------------
2,000,000 Coon Rapids, MN, Hospital Authority Weekly VRDNs (Series 1985)/(The
Health Central System)/(First Bank N.A. LOC) A-1 2,000,000
-------------------------------------------------------------------
5,450,000 Crystal, MN, IDA Weekly VRDNs (Crystal Gallery Mall)/ (Citibank,
N.A. LOC) P-1 5,450,000
-------------------------------------------------------------------
6,150,000 Duluth, MN, IDA Weekly VRDNs (Lake Superior Paper)/ (National
Australia Bank, Ltd. LOC) VMIG1 6,150,000
-------------------------------------------------------------------
316,536 Eden Prairie, MN, IDA Weekly VRDNs (Series 1987)/ (Minnesota Supply
Co.)/(Norwest Bank Minnesota LOC) P-1 316,536
-------------------------------------------------------------------
890,000 Eden Prairie, MN, IDR PoundS-93 Weekly VRDNs (Richard W
Cohen)/(Norwest Bank Minnesota LOC) P-1 890,000
-------------------------------------------------------------------
2,000,000 Edina, MN, ISD Pound273, 2.91% GO TANs, 3/30/94 NR(3) 2,002,068
-------------------------------------------------------------------
1,400,000 Elk River, MN, Weekly VRDNs (Tescom Corp. Project)/ (Norwest Bank
Minnesota LOC)/(Subject to AMT) P-1 1,400,000
-------------------------------------------------------------------
5,000,000 Faribault, MN, IDA Weekly VRDNs (Series 1988)/(Jerome Foods,
Inc.)/(Norwest Bank Minnesota LOC) P-1 5,000,000
-------------------------------------------------------------------
3,275,000 Forest Lake, MN, ISD Pound831, 3.04% TANs, 3/8/94 NR(3) 3,275,424
-------------------------------------------------------------------
1,175,000 Hennepin County, MN, ISD Pound286, 2.80% TANs (Brooklyn Center),
3/25/94 NR(3) 1,175,000
-------------------------------------------------------------------
2,500,000 Hubbard County, MN, Solid Waste Disposal Weekly VRDNs (Series
1990)/(Potlatch Corp.)/(Credit Suisse LOC)/(Subject to AMT) A-1+ 2,500,000
-------------------------------------------------------------------
4,220,000 Lakeville, MN, IDS Pound194, 3.00%, 9/30/94 NR 4,220,000
-------------------------------------------------------------------
4,000,000 Maple Grove, MN, IDA Weekly VRDNs (Series 1991A)/ (Eagle Ridge
Apartment)/(Sumitomo Bank, Ltd. LOC) A-1+ 4,000,000
-------------------------------------------------------------------
3,000,000 Maple Grove, MN, Weekly VRDNs (Series 1991B)/(Eagle Ridge
Apartment)/(First Bank N.A. LOC) A-1 3,000,000
-------------------------------------------------------------------
2,025,000 Maplewood, MN, Multi-Family Housing Weekly VRDNs (Series
1993)/(Silver Ridge)/(Federal Home Loan Bank of Chicago LOC) A-1+ 2,025,000
-------------------------------------------------------------------
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT ISSUE (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
MINNESOTA--CONTINUED
-------------------------------------------------------------------
$ 2,700,000 Mendota Heights, MN, Multi-Family Revenue Bonds Weekly VRDNs
(Lexington Heights Apartments)/ (Sumitomo Bank, Ltd. LOC) A-1+ $ 2,700,000
-------------------------------------------------------------------
745,000 Minneapolis, MN, IDA Weekly VRDNs (JTJ Company)/ (First Bank N.A.
LOC) P-1 745,000
-------------------------------------------------------------------
20,000,000 Minneapolis, MN, Special School District, 3.00% TANs (Series 1993),
1/27/94 MIG1 20,014,825
-------------------------------------------------------------------
990,000 Minneapolis, MN, Weekly VRDNs (Great River Road)/ (Bayerische
Vereinsbank BPA) VMIG1 990,000
-------------------------------------------------------------------
1,000,000 Minnesota Energy & Economic Development Authority Hospital
Equipment Revenue, 7.90% Annual TOBs (Series 1985A)/(AMBAC
Insured), 12/1/93 NR(1) 1,003,937
-------------------------------------------------------------------
1,500,000 Minnesota Higher Education Facilities Authority Weekly VRDNs
(Carlton College Guaranty) VMIG1 1,500,000
-------------------------------------------------------------------
8,000,000 Minnesota State Commissioner of Iron Range Resources &
Rehabilitation Weekly VRDNs (Series 1991)/(Louisiana Pacific
Corp.)/(Wachovia Bank & Trust Co. LOC) P-1 8,000,000
-------------------------------------------------------------------
2,700,000 Minnesota State Higher Education Coordinating Board Weekly VRDNs
(Student Loan Program)/(Series 1990)/ (First Bank, N.A.
LOC)/(Subject to AMT) VMIG1 2,700,000
-------------------------------------------------------------------
2,500,000 Minnesota State Higher Education Coordinating Board Weekly VRDNs
(Student Loan Program)/(Series 1992A)/ (Subject to AMT) VMIG1 2,500,000
-------------------------------------------------------------------
7,000,000 Minnesota State Higher Education Coordinating Board Weekly VRDNs
(Student Loan Program)/(Subject to AMT) P-1 7,000,000
-------------------------------------------------------------------
5,500,000 Minnesota State Higher Education Facilities Authority, 2.60%
Semi-annual TOBs (Carlton College Guaranty), Optional Tender 2/1/94 VMIG1 5,500,000
-------------------------------------------------------------------
3,900,000 Minnesota State Higher Education Facility Authority Weekly VRDNs
(Series 3D)/(College of St. Benedict)/ (Sumitomo Bank Ltd. LOC) VMIG1 3,900,000
-------------------------------------------------------------------
1,120,000 Minnesota State Weekly VRDNs P-Floats VMIG1 1,120,000
-------------------------------------------------------------------
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT ISSUE (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
MINNESOTA--CONTINUED
-------------------------------------------------------------------
$ 3,000,000 Minnesota State, 4.90% GO Bonds, 8/1/94 NR(2) $ 3,043,868
-------------------------------------------------------------------
6,800,000 Minnetonka, MN, Multi-Family Housing Weekly VRDNs (Cliffs at
Ridgedale)/(Citibank, N.A. LOC) A-1 6,800,000
-------------------------------------------------------------------
1,300,000 New Brighton, MN, IDR Weekly VRDNs (Unicare Homes Inc.)/(Banque
Paribas LOC) A-1+ 1,300,000
-------------------------------------------------------------------
4,000,000 New Hope, MN, Weekly VRDNs (Paddock Labs)/ (Norwest Bank Minnesota
LOC)/(Subject to AMT) P-1 4,000,000
-------------------------------------------------------------------
1,000,000 Northern Minnesota Municipal Power Agency, 8.75% Power Supply
Revenue Bonds (Escrowed), 1/1/94 NR(1) 1,012,472
-------------------------------------------------------------------
3,500,000 Perham, MN, IDA Weekly VRDNs (Land O' Lakes, Inc.)/ (Rabobank
Nederland LOC)/(Subject to AMT) A-1+ 3,500,000
-------------------------------------------------------------------
2,200,000 Port of Austin, MN, Weekly VRDNs (Mower House Color Co.)/(Norwest
Bank Minnesota LOC)/(Subject to AMT) P-1 2,200,000
-------------------------------------------------------------------
3,000,000 Rochester, MN, Health Care Facility Authority, 2.55% CP (Series
C)/(Mayo Clinic Foundation Guaranty), Mandatory Tender 2/17/94 A-1+ 3,000,000
-------------------------------------------------------------------
1,750,000 Rogers, MN, IDA Weekly VRDNs (Metal Sales Manufacturing
Corp.)/(Union Bank of Switzerland LOC)/ (Subject to AMT) P-1 1,750,000
-------------------------------------------------------------------
7,000,000 Saint Cloud, MN, Hospital Facility Authority Weekly VRDNs (Series
1990A)/(St. Cloud Hospital)/(Kredeitbank N.V. LOC) A-1+ 7,000,000
-------------------------------------------------------------------
350,000 St. Louis Park, MN, GO Weekly VRDNs (Series 1987C) VMIG1 350,000
-------------------------------------------------------------------
2,500,000 Saint Paul Port Authority, MN, Tax Increment Weekly VRDNs (Series
1991)/(First Bank N.A. LOC) A-1 2,500,000
-------------------------------------------------------------------
1,000,000 Saint Paul, MN, 2.75% GO BANs Riverfront Refunding Bonds, 2/1/94 NR(2) 1,000,000
-------------------------------------------------------------------
640,000 Saint Paul, MN, 2.75% GO BANs 2/1/94 NR(2) 640,000
-------------------------------------------------------------------
800,000 Saint Paul, MN, Housing & Redevelopment Authority Weekly VRDNs
(Concord Green)/(First Bank N.A. LOC) P-1 800,000
-------------------------------------------------------------------
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT ISSUE (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
MINNESOTA--CONTINUED
-------------------------------------------------------------------
$ 5,000,000 Saint Paul, MN, Housing & Redevelopment Authority Weekly VRDNs
(District Cooling, Inc.)/(Credit Local de France LOC)/(Subject to
AMT) A-1+ $ 5,000,000
-------------------------------------------------------------------
600,000 Saint Paul, MN, Housing & Redevelopment Authority Weekly VRDNs
(United Way)/(First Bank N.A. LOC) A-1 600,000
-------------------------------------------------------------------
3,000,000 Saint Paul, MN, Independent School District Pound625, 2.85% TANs,
2/28/94 NR(2) 3,000,565
-------------------------------------------------------------------
5,900,000 South Saint Paul, MN, Housing & Redevelopment Authority Weekly
VRDNs (Health East Project)/(Series 1992)/(Sumitomo Trust and
Banking Co. Ltd. LOC) VMIG2 5,900,000
-------------------------------------------------------------------
1,135,000 Staples, MN, ISD, 3.00% GO Bonds (Series 1993),
9/10/94 NR(4) 1,135,000
-------------------------------------------------------------------
6,500,000 University of Minnesota, 2.65% Semi-Annual TOBs
(Series F), Optional Tender 2/1/94 VMIG1 6,500,000
-------------------------------------------------------------------
1,425,000 Wells, MN, 3.00% Semi-Annual TOBs (Stokely USA, Inc.)/(National
Bank of Detroit LOC)/(Subject to AMT), Mandatory Tender 12/1/93 P-1 1,425,000
-------------------------------------------------------------------
5,925,000 White Bear, MN, Weekly VRDNs (Thermoform Plastics, Inc.)/(Norwest
Bank Minnesota LOC)/(Subject to AMT) A-1+ 5,925,000
-------------------------------------------------------------------
2,000,000 Winsted, MN, IDA Weekly VRDNs (Sterner Lighting Systems)/(Fleet
National Bank LOC)/(Subject to AMT) A-1 2,000,000
------------------------------------------------------------------- ---------------
Total 231,689,490
------------------------------------------------------------------- ---------------
PUERTO RICO--0.9%
-------------------------------------------------------------------
2,200,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit
Suisse and Sumitomo Bank, Ltd. LOCs) A-1+ 2,200,000
------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS (AT AMORTIZED COST) $ 233,889,490\
------------------------------------------------------------------- ---------------
</TABLE>
\ Also represents cost for federal tax purposes.
* See Notes to Portfolio of Investments.
Note: The categories of investments are shown as a percentage of net assets
($233,386,545) at October 31, 1993.
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
AMT--Alternative Minimum Tax
BANs--Bond Anticipation Notes
BPA--Bond Purchase Agreement
CP--Commercial Paper
GO--General Obligation
IDA--Industrial Development Authority
IDR--Industrial Development Revenue
ISD--Independent School District
LOC--Letter(s) of Credit
LOCs--Letters of Credit
NRUCFC--National Rural Utilities Cooperative Finance Corporation
PCR--Pollution Control Revenue
TANs--Tax Anticipation Notes
TOBs--Tender Option Bonds
VRDNs--Variable Rate Demand Notes
MINNESOTA MUNICIPAL CASH TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
S&P
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S
Moody's short-term ratings are designated Moody's Investment Grade (MIG OR VMIG
(see below)). The purpose of the MIG of VMIG ratings is to provide investors
with a simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
FITCH
Fitch's short-term ratings place greater emphasis on the existence of liquidity
necessary to meet the issuers' obligations in a timely manner.
F-1 Strongest degree of assurance for timely payment. Those issues determined to
provide exceptionally strong credit quality are given a plus (+)
designation.
F-2 Notes reflecting a degree of assurance for timely payment only slightly less
in degree than the highest category.
VARIABLE RATE DEMAND NOTES (VRDNS)
AND
TENDER OPTION BONDS (TOBS)
RATINGS
S&P
Standard & Poor's assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand
MINNESOTA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
characteristics. Several examples are AAA/A-1+, AA/A-1K, and A/A-1. (The
definitions for the long-term and the short-term ratings are provided below.)
MOODY'S
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity.
In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the
first representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the second representing an evaluation of
the degree of risk associated with the demand feature. The VMIG rating can be
assigned a 1 or 2 designation using the same definitions described above for the
MIG rating.
FITCH
Fitch usually assigns two ratings to long-term debt issues that include
provisions for a variable rate demand feature. The long-term rating addresses
the ability of the obligor to pay debt service and the short-term rating
addresses the timely payment of the demand feature. Examples of rating
designations are as follows: AAA/F-1+, AA/F-1+, and A/F-1. (The definitions for
the long-term and short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
S&P
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1".
MOODY'S
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
MINNESOTA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
The following is an explanation of the Fitch ratings. These ratings are not
referenced in the Portfolio of Investments.
FITCH
F-1 Issues assigned this rating reflect a strong degree of assurance for timely
payment. Those issuers determined to possess the strongest degree of
assurance for timely payment are denoted with a plus (+) sign designation.
F-2 Issuers carrying this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the "F-1+" and
"F-1" categories.
LONG-TERM DEBT RATINGS
(INVESTMENT GRADE)
S&P
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
principal and interest than debt rated in higher ratings categories.
MOODY'S
Aaa Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large margin and
principal is secure. While the various protective elements are likely to
change, such changes which can be foreseen are most unlikely to impair
the fundamentally strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
MINNESOTA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
A Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present that suggest a susceptibility to impairment some time in
the future.
Baa Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
FITCH
AAA Bonds that are rated AAA are of the highest credit quality. The obligor
has an exceptionally strong ability to pay debt service.
AA Bonds that are rated AA are of very high quality. The obligor has a very
strong ability to pay debt service. Debt rated in this category may also
have a (+) or (-) sign with a rating to indicate the relative position
within the rating category.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
NR indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P, Moody's, or Fitch with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated in one of the two highest short-term ratings
categories by a nationally recognized statistical ratings organization.
NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by
Fitch.
NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch.
NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "A" by Standard & Poor's, Moody's, or Fitch.
NR(4) The underlying issuer/obligor/gurantor has other outstanding long-term
debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by
Fitch.
MINNESOTA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $ 233,889,490
- ------------------------------------------------------------------------------------------------
Cash 244,164
- ------------------------------------------------------------------------------------------------
Interest receivable 1,634,135
- ------------------------------------------------------------------------------------------------
Receivable for investments sold 76,397
- ------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 4,600
- ------------------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 8,055
- ------------------------------------------------------------------------------------------------ ---------------
Total assets 235,856,841
- ------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------------
Payable for investments purchased $ 2,000,145
- ---------------------------------------------------------------------------------
Dividends payable 332,125
- ---------------------------------------------------------------------------------
Payable for Fund shares redeemed 54,189
- ---------------------------------------------------------------------------------
Accrued expenses and other liabilities 83,837
- --------------------------------------------------------------------------------- -------------
Total liabilities 2,470,296
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS for 233,386,545 shares of beneficial interest outstanding $ 233,386,545
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- ------------------------------------------------------------------------------------------------
Institutional Shares ($165,865,146 / 165,865,146 shares of beneficial interest outstanding)
$1.00
- ------------------------------------------------------------------------------------------------ ---------------
Cash Series Shares ($67,521,399 / 67,521,399 shares of beneficial interest outstanding)
$1.00
- ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 7,290,313
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 1,077,211
- ------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 333,328
- ------------------------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 169,851
- ------------------------------------------------------------------------------------
Trustees' fees 3,837
- ------------------------------------------------------------------------------------
Auditing fees 15,945
- ------------------------------------------------------------------------------------
Legal fees 13,281
- ------------------------------------------------------------------------------------
Printing and postage 36,284
- ------------------------------------------------------------------------------------
Fund share registration costs 56,233
- ------------------------------------------------------------------------------------
Distribution services fees (Note 5) 361,675
- ------------------------------------------------------------------------------------
Insurance premiums 12,460
- ------------------------------------------------------------------------------------
Miscellaneous 17,129
- ------------------------------------------------------------------------------------ -------------
Total expenses 2,097,234
- ------------------------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 915,191
- -----------------------------------------------------------------------
Waiver of distribution services fees (Note 5) 72,335 987,526
- ----------------------------------------------------------------------- ----------- -------------
Net expenses 1,109,708
- --------------------------------------------------------------------------------------------------- -------------
Net investment income $ 6,180,605
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1993 1992
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------
Net investment income $ 6,180,605 $ 6,457,573
- ----------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -----------------------------------------------------------------------------
Institutional Shares (4,723,866) (4,448,140)
- -----------------------------------------------------------------------------
Cash Series Shares (1,456,739) (2,009,433)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from distributions to shareholders (6,180,605) (6,457,573)
- ----------------------------------------------------------------------------- ---------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------
Net proceeds from sale of shares 856,352,639 761,703,208
- -----------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 1,606,041 2,151,596
- -----------------------------------------------------------------------------
Cost of shares redeemed (944,784,209) (637,992,476)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from Fund share transactions (86,825,529) 125,862,328
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets (86,825,529) 125,862,328
- -----------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------
Beginning of period 320,212,074 194,349,746
- ----------------------------------------------------------------------------- ---------------- ----------------
End of period $ 233,386,545 $ 320,212,074
- ----------------------------------------------------------------------------- ---------------- ----------------
(See Notes which are an integral part of the Financial Statements)
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company
with several portfolios. The financial statements included herein are only those
of Minnesota Municipal Cash Trust (the "Fund"). The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
Effective December 31, 1990, the Fund provides two classes of shares
("Institutional Shares" and "Cash Series Shares"). Cash Series Shares are
identical in all respects to Institutional Shares except that Cash Series Shares
are sold pursuant to a distribution plan ("Plan") adopted in accordance with
Investment Company Act Rule 12b-1. Under the Plan, the Fund paid Federated
Securities Corp. ("the distributor") a fee at an annual rate up to .50 of 1% of
the average daily net asset value of Cash Series Shares to finance any activity
which principally intended to result in the sale of Cash Series Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined
that the best method currently available for valuing portfolio securities
is amortized cost. The Fund's use of the amortized cost method to value its
portfolio securities is conditioned on its compliance with Rule 2a-7 under
the Investment Company Act of 1940.
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state, than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such
factors, at October 31, 1993, 68.7% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The
aggregate percentages by financial institution ranged from 0.4% to 10.6% of
total investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest earned net of premium, and original issue discount as
required by the Internal Revenue Code (the "Code").
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to investment companies and to distribute to shareholders
each year all of its net income. Accordingly, no provision for federal tax
is necessary. Dividends paid by the Fund representing net interest received
on tax-exempt municipal securities are not includable by shareholders as
gross income for federal income tax purposes because the Fund intends to
meet certain requirements of the Code applicable to regulated investment
companies which will enable the Fund to pay exempt-
MINNESOTA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
interest dividends. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986 may be considered a tax
preference item to shareholders for the purpose of computing the
alternative minimum tax.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Fund
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objectives and policies
and not for the purpose of investment leverage. The Fund will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Fund will maintain security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
F. EXPENSES--Expenses of the Fund (other than distribution services fees) and
waivers and reimbursements, if any, are allocated to each class of shares
based on its relative daily average net assets for the period. Expenses
incurred by the Trust which do not specifically relate to an individual
fund are allocated among all funds based on a fund's relative net asset
value size or as deemed appropriate by the administrator.
G. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) DIVIDENDS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash, or in additional
shares at the net asset value on the payable date.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1993, capital paid-in aggregated $233,386,545.
Transactions in Fund shares were as follows:
MINNESOTA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SERVICE SHARES 1993 1992
- -------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Shares outstanding, beginning of period 245,167,786 124,602,806
- --------------------------------------------------------------------------------
Shares sold 610,443,315 531,157,380
- --------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 190,482 188,828
- --------------------------------------------------------------------------------
Shares redeemed (689,936,437) (410,781,228)
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period 165,865,146 245,167,786
- -------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
CASH SERIES SHARES 1993 1992
- -------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Shares outstanding, beginning of period 75,044,288 69,746,940
- --------------------------------------------------------------------------------
Shares sold 245,909,324 230,545,828
- --------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 1,415,559 1,962,768
- --------------------------------------------------------------------------------
Shares redeemed (254,847,772) (227,211,248)
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period 67,521,399 75,044,288
- -------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Management, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to .40 of 1% of the Fund's
average daily net assets. The Adviser has voluntarily agreed to waive a portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time in its sole discretion. During the fiscal year ended October 31, 1993 the
Adviser earned $1,077,211 as its advisory fee, of which $915,191 was voluntarily
waived.
Organizational expenses ($40,733) were borne initially by the Adviser. The Fund
has agreed to pay the Adviser, at an annual rate .005 of 1% of average daily net
assets until the expenses borne initially by the Adviser are reimbursed, or the
expiration of five years from August 31, 1990, the date the Trust's portfolio
became effective, whichever occurs earlier. During the fiscal year ended October
31, 1993 the Fund paid the Adviser $8,055 pursuant to this agreement.
During the fiscal year ended October 31, 1993, pursuant to Rule 17a-7 of the
Investment Company Act of 1940, the Fund engaged in purchase and sale
transactions with other Funds advised by the Adviser amounting to $378,800,000
and $486,546,962, respectively. These purchases and sales were conducted on an
arms-length basis insofar as they were transacted for cash consideration only,
at independent current market prices and without brokerage commission, fee or
other remuneration.
The Trust has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The Trust will compensate Federated Securities
Corp. ("FSC"), the principal distributor, from
MINNESOTA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
the assets of the Fund, for fees it paid which relate to the distribution and
administration of the Fund's Cash Series Shares. The Plan provides that the Fund
may incur distribution expenses up to .50 of 1% of the average daily net assets
of the Cash Series Shares, annually, to pay commissions, maintenance fees and to
compensate the distributor. During the fiscal year ended October 31, 1993, FSC
earned $361,675 in distribution services fees of which $72,335 was voluntarily
waived.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Certain Officers and Trustees of the
Trust are Officers and Directors of the above corporations.
(6) CURRENT CREDIT RATINGS
Current credit ratings and related notes are unaudited.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST (Minnesota Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of
Minnesota Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
investments, as of October 31, 1993, the related statement of operations for the
year then ended, the statement of changes in net assets, and the financial
highlights (see pages 2 and 19 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of October 31, 1993,
by correspondence with the custodian and broker. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Minnesota Municipal Cash Trust, an investment portfolio of Federated Municipal
Trust, as of October 31, 1993, the results of its operations for the year then
ended, and the changes in its net assets, and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR
ANDERSEN & CO.
Pittsburgh, Pennsylvania
December 13, 1993
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Minnesota Municipal Cash Trust
Cash Series Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts 02266-8604
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
MINNESOTA MUNICIPAL
CASH TRUST
CASH SERIES SHARES
PROSPECTUS
A Non-Diversified Portfolio of
Federated Municipal Trust, an
Open-End
Management Investment Company
December 31, 1993
0082715A-CSS (12/93)
MINNESOTA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Minnesota Municipal Cash Trust (the "Fund") offered
by this prospectus represent interests in a non-diversified portfolio of
securities which is one of a series of investment portfolios in Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The investment objective of the Fund is to provide current income
exempt from federal regular income tax and the regular personal income taxes
imposed by the State of Minnesota consistent with stability of principal. The
Fund invests primarily in short-term Minnesota municipal securities. The Fund
invests primarily in short-term Minnesota municipal securities, including
securities of states, territories, and possessions of the United States, which
are not issued by or on behalf of the State of Minnesota or its political
subdivisions and financing authorities, which are exempt from the federal
regular income tax and the regular personal income taxes imposed by the State of
Minnesota. Institutional Shares are sold at net asset value, without a sales
load.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THE INSTITUTIONAL SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in Institutional Shares. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for
Institutional Shares and Cash Series Shares dated December 31, 1993, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference in this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or make inquiries about the Fund contact the Fund at the address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 31, 1993
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 4
Variable Rate Demand Notes 4
Participation Interests 4
Municipal Leases 4
Ratings 4
Credit Enhancement 5
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed
Delivery Transactions 5
Temporary Investments 5
Minnesota Municipal Securities 6
Standby Commitments 6
Minnesota Investment Risks 7
Non-Diversification 7
Investment Limitations 7
Regulatory Compliance 8
FEDERATED MUNICIPAL TRUST INFORMATION 8
- ------------------------------------------------------
Management of Federated Municipal Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Institutional Shares 9
Administrative Arrangements 9
Administration of the Fund 9
Administrative Services 9
Custodian 9
Transfer Agent and Dividend
Disbursing Agent 10
Legal Counsel 10
Independent Public Accountants 10
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 10
- ------------------------------------------------------
Share Purchases 10
By Wire 10
By Mail 10
Minimum Investment Required 10
What Shares Cost 11
Subaccounting Services 11
Certificates and Confirmations 11
Dividends 11
Capital Gains 11
REDEEMING INSTITUTIONAL SHARES 12
- ------------------------------------------------------
Telephone Redemption 12
Written Requests 12
Signatures 12
Receiving Payment 13
Checkwriting 13
Redemption Before Purchase
Instruments Clear 13
Accounts with Low Balances 13
SHAREHOLDER INFORMATION 13
- ------------------------------------------------------
Voting Rights 13
Massachusetts Partnership Law 14
TAX INFORMATION 14
- ------------------------------------------------------
Federal Income Tax 14
Minnesota Tax Considerations 15
Other State and Local Taxes 15
PERFORMANCE INFORMATION 15
- ------------------------------------------------------
OTHER CLASSES OF SHARES 16
- ------------------------------------------------------
Financial Highlights--Cash Series Shares 17
FINANCIAL STATEMENTS 18
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 36
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................................................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................................... None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)................................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable)...................................... None
Exchange Fee............................................................................................ None
ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)....................................................................... 0.06%
12b-1 Fee............................................................................................... None
Other Expenses.......................................................................................... 0.25%
Total Institutional Shares Operating Expenses (2)............................................. 0.31%
</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 Total Institutional Shares Operating Expenses would have been 0.65%
absent the voluntary waiver of a portion of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SHARES OF THE
FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF
THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SHARES" AND
"FEDERATED MUNICIPAL TRUST INFORMATION." Wire-transferred redemptions of less
than $5,000 may be subject to additional fees.
<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. As noted
in the table above, the Fund charges no redemption fee
for Institutional Shares.............................................. $3 $10 $17 $39
</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.
The information set forth in the foregoing table and example relates only
to Institutional Shares of the Fund. The Fund also offers another class of
shares called Cash Series Shares. Institutional Shares and Cash Series Shares
are subject to certain of the same expenses; however, Cash Series Shares are
subject to a 12b-1 fee of up to 0.50%. See "Other Classes of Shares."
MINNESOTA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to Report of Independent Public Accountants on page 36.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1993 1992 1991 1990*
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------
Net investment income 0.02 0.03 0.05 0.01
- ----------------------------------------------------------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- -----------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.03) (0.05) (0.01)
- ----------------------------------------------------------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------- --------- --------- --------- ---------
TOTAL RETURN** 2.43% 3.19% 4.89% 0.90 (a)
- -----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------
Expenses 0.31% 0.31% 0.30% 0.01 (b)
- -----------------------------------------------------------
Net investment income 2.40% 3.10% 4.73% 6.45 (b)
- -----------------------------------------------------------
Expense waiver/reimbursement (c) 0.34% 0.33% 0.43% 0.69 (b)
- -----------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------
Net assets, end of period (000 omitted) $165,865 $245,168 $124,603 $75,904
- -----------------------------------------------------------
</TABLE>
* Reflects operations for the period from September 10, 1990 (date of initial
public investment) to October 31, 1990.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) The expense voluntary decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Trustees ("Trustees") have established two classes of
shares, known as Institutional Shares and Cash Series Shares. This prospectus
relates only to Institutional Shares of the Fund.
Institutional Shares ("Shares") of the Fund are designed for the investment of
moneys held by financial institutions in a fiduciary capacity. A minimum initial
investment of $25,000 over a 90-day period is required. The Fund may not be a
suitable investment for non-Minnesota taxpayers or retirement plans since it
invests primarily in Minnesota municipal securities.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal regular income tax and the regular personal income taxes imposed by the
state of Minnesota consistent with stability of principal. The investment
objective cannot be changed without approval of shareholders. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than Minnesota.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of Minnesota municipal securities with remaining maturities of 13 months or less
at the time of purchase by the Fund. As a matter of investment policy which
cannot be changed without the approval of shareholders, the Fund invests its
assets so that (1) at least 80% of its annual interest income is exempt from
federal regular income tax and Minnesota regular personal income tax ("exempt
interest dividends") and (2) at least 95% of the exempt interest dividends that
the Fund pays to its shareholders will derive from interest income from
Minnesota municipal securities. The remaining 5% of such exempt interest
dividends paid to shareholders will derive either from interest income on
Minnesota municipal securities or interest income which is exempt from both
federal regular and Minnesota regular personal income taxes. The average
maturity of the securities in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the
investment policies may be changed by the Trustees without the approval of
shareholders. Shareholders will be notified before any material changes in these
policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued
by or on behalf of Minnesota and its political subdivisions and financing
authorities, and obligations of other states, territories and possessions of the
United States, including the District of Columbia, and any political subdivision
or financing authority of any of these, the income from which is, in the opinion
of qualified legal counsel, exempt from both federal regular income tax and
Minnesota state income tax imposed upon non-corporate taxpayers. Examples of
Minnesota Municipal Securities include, but are not limited to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
municipal securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days' prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS. The Fund may purchase interests in municipal
securities from financial institutions such as commercial and investment
banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying municipal securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and may be considered to be illiquid. They may take the form
of a lease, an installment purchase contract, a conditional sales contract,
or a participation certificate on any of the above.
RATINGS. The Minnesota municipal securities in which the Fund invests must
either be rated in one of the two highest short-term rating categories by one or
more nationally recognized statistical rating organizations ("NRSROs") or be of
comparable quality to securities having such ratings. An NRSRO's two highest
rating categories are determined without regard for sub-categories and
gradations. For
example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation
("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or
FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service, Inc. ("Fitch") are all
considered rated in one of the two highest short-term rating categories. The
Fund will follow applicable regulations in determining whether a security rated
by more than one NRSRO can be treated as being in one of the two highest
short-term rating categories; currently, such securities must be rated by two
NRSROs in one of their two highest categories. See "Regulatory Compliance."
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit-enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit-enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
The Fund may have more than 25% of its total assets invested in securities
credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by other
third party, and may not be transferred separately from the underlying security.
The Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Trustees, certain restricted securities are considered to be
liquid. To the extent restricted securities are deemed to be illiquid, the Fund
will limit their purchase, together with other securities considered to be
illiquid, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Minnesota
municipal securities on a when-issued or delayed delivery basis. In when-issued
and delayed delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term, non-Minnesota municipal
tax-exempt obligations or other taxable, temporary investments. All temporary
investments will satisfy the same credit quality standards as the Fund's
acceptable investments. See "Ratings" above. Temporary investments include:
notes issued by or on behalf of municipal or corporate issuers; marketable
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; and repurchase agreements (arrangements in which banks,
broker/dealers, and other recognized financial
institutions sell the Fund a temporary investment and agree to repurchase it at
a mutually agreed upon time and price).
Although the Fund is permitted to make taxable temporary investments, there is
no current intention of generating income subject to federal regular income tax
or Minnesota state regular personal income tax.
MINNESOTA MUNICIPAL SECURITIES
Minnesota municipal securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Minnesota municipal securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS
Some securities dealers are willing to sell municipal securities to the Fund
accompanied by their commitments to repurchase the municipal securities prior to
maturity, at the Fund's option, for the amortized cost of the municipal
securities at the time of repurchase. These arrangements are not used to protect
against changes in the market value of municipal securities. They permit the
Fund, however, to remain fully invested and still provide liquidity to satisfy
redemptions. The cost of municipal securities accompanied by these "standby"
commitments could be greater than the cost of municipal securities without such
commitments. Standby commitments are not marketable or otherwise assignable and
have value only to the Fund. The default or bankruptcy of a securities dealer
giving such a commitment would not affect the quality of the municipal
securities purchased. However, without a standby commitment, these securities
could be more difficult to sell. The Fund enters into standby commitments only
with those dealers whose credit the investment adviser believes to be of high
quality.
MINNESOTA INVESTMENT RISKS
Yields on Minnesota municipal securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the State of Minnesota or its
municipalities could impact the Fund's portfolio. Minnesota escaped the worst
part of the recent national economic downturn largely due to the diversified
nature of the state's economy. State-wide unemployment remains below the
national level and personal income growth continues to reflect favorable
economic conditions. Generally, growth in the state should lag behind the nation
over the next several years as
the economy rebounds. The ability of the Fund to achieve its investment
objective also depends on the continuing ability of the issuers of Minnesota
municipal securities and demand features for such securities, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. Investing in Minnesota municipal securities which meet the
Fund's quality standards may not be possible if the State of Minnesota or its
municipalities do not maintain their high quality, short-term credit ratings. An
expanded discussion of the current economic risks associated with the purchase
of Minnesota municipal securities is contained in the Combined Statement of
Additional Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified investment portfolio because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, with
regard to at least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following limitation, however, can be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not invest more than 5% of its total assets in industrial
development bonds or other municipal securities when the payment of principal
and interest is the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations, including the
operation of any predecessor.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Combined Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which regulates
money market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF FEDERATED MUNICIPAL TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of
Trustees is responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for the voluntary waiver of the advisory
fee by the adviser, the adviser may voluntarily waive some or all of the
advisory fee. This does not include reimbursement to the Fund of any
expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The adviser can terminate this voluntary waiver
of expenses at any time at its sole discretion. The adviser has also
undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional Shares
of the Fund. It is a Pennsylvania corporation organized on November 14, 1969,
and is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATIVE ARRANGEMENTS. The distributor may select brokers and dealers to
provide distribution and administrative services. The distributor may also
select administrators (including depository institutions such as commercial
banks and savings and loan associations) to provide administrative services.
These administrative services include, but are not limited to, distributing
prospectuses and other information, providing accounting assistance and
communicating or facilitating purchases and redemptions of Shares.
Brokers, dealers, and administrators will receive fees from the distributor
based upon Shares owned by their clients or customers. The fees are calculated
as a percentage of the average aggregate net asset value of shareholder accounts
during the period for which the brokers, dealers, and administrators provide
services. Any fees paid for these services by the distributor will be reimbursed
by the adviser.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings and loan association) to become an underwriter or
distributor of securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the administrative services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary
of Federated Investors, provides the Fund with the administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services, Inc. provides these at approximate cost.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by adding the interest of the Shares in the value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding.
The Fund, of course, cannot guarantee that its net asset value will always
remain at $1.00 per Share.
INVESTING IN INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open for business. Shares may be purchased either by
wire or mail. The Fund reserves the right to reject any purchase request. To
purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) that same day. Federal funds should be wired as follows: State Street Bank
and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
Minnesota Municipal Cash Trust--Institutional Shares; Fund Number (this number
can be found on the account statement or by contacting the Fund); Group Number
or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on days on which the New York Stock Exchange is
closed and on federal holidays restricting wire transfers.
BY MAIL. To purchase Shares by mail, send a check made payable to Minnesota
Municipal Cash Trust--Institutional Shares to the Trust's transfer agent,
Federated Services Company, c/o State Street Bank and Trust Company, P.O. Box
8602, Boston, Massachusetts 02266-8602. Orders by mail are considered received
when payment by check is converted by State Street Bank into federal funds. This
is normally the next business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Shares of the Fund is $25,000. However, an
account may be opened with a smaller amount as long as the $25,000 minimum is
reached within 90 days. An institutional investor's minimum investment will be
calculated by combining all accounts it maintains with the Fund. Individual
accounts established through a bank or broker may be subject to a different
minimum investment requirement.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a bank or broker may be charged an additional service fee by that
bank or broker.
The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Financial
institutions holding Shares in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the financial institution with regard to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the day after the check is converted, upon
instruction of the transfer agent, into federal funds. Dividends are
automatically reinvested on payment dates in additional Shares unless cash
payments are requested on an application or by contacting the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses,
if any, could result in a decrease in dividends. If, for some extraordinary
reason, the Fund realizes net long-term or short-term capital gains, it will
distribute them at least once every 12 months.
REDEEMING INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund. Redemption
requests received before 12:00 noon (Eastern time) are not entitled to that
day's dividend. A daily dividend will be paid on Shares redeemed if the
redemption request is received after 12:00 noon (Eastern time). However, the
proceeds are not wired until the following business day. If, at any time, the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders will be promptly notified.
An authorization form permitting the Fund to accept redemption requests by
telephone must first be completed. Authorization forms and information on this
service are available from Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, shareholders may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as Written Requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name and class of shares,
his account number, and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request, provided that the transfer agent has received
payment for the Shares from the shareholder.
CHECKWRITING. At the shareholder's request, State Street Bank will estabish a
checking account for redeeming Shares. For further information, contact
Federated Securities Corp.
A fee may be charged for this service. With a Fund checking account, Shares may
be redeemed simply by writing a check. The redemption will be made at the net
asset value on the date that State Street Bank presents the check to the Fund. A
check may not be written to close an account. If a shareholder wishes to redeem
Shares and have the proceeds available, a check may be written and negotiated
through the shareholder's bank. Checks should never be sent to State Street Bank
to redeem Shares. Cancelled checks are returned to the shareholder each month.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, the proceeds from the redemption of those
Shares are not available, and the Shares may not be exchanged, until the Fund or
its agents are reasonably certain that the purchase check has cleared, which
could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote. As of November 29, 1993, VAR & Co., St. Paul, Minnesota, owned
53.82% of the voting securities of the Institutional Shares of the Fund, and,
therefore, may, for certain purposes, be deemed to control the Institutional
Shares of the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of all series in the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders, for such
acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument that the
Trust or its Trustees enter into or sign.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, currently equal to up to 28% of alternative minimum
taxable income for individuals and 20% for corporations, applies when it exceeds
the regular tax for the taxable year. Alternative minimum taxable income is
equal to the regular taxable income of the taxpayer increased by certain "tax
preference" items not included in regular taxable income and reduced by only a
portion of the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, 75% of the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
MINNESOTA TAX CONSIDERATIONS
Dividends paid by the Fund to shareholders will be exempt from the Minnesota
regular personal income tax to the extent that (i) such dividends qualify as
exempt interest dividends under the Internal Revenue Code; and (ii) 95% of such
dividends are derived from interest on obligations issued by the State of
Minnesota or any of its political or governmental subdivisions, municipalities,
or governmental agencies or instrumentalities ("Minnesota municipal
obligations"). Even if the Fund does derive 95% of exempt interest dividends
from interest income on Minnesota municipal obligations, shareholders could
potentially be liable for Minnesota regular personal income tax to the extent
that the remaining exempt interest dividends paid to them are derived from
sources of income not exempt from Minnesota regular personal income tax.
Dividends of the Fund are not exempt from the Minnesota income taxes payable by
corporations. Minnesota only includes tax exempt interest from private activity
bonds as a tax preference item for purposes of its alternative minimum tax.
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from regular state income taxes in
states other than Minnesota or from personal property taxes. State laws differ
on this issue and shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield, effective yield, and
tax-equivalent yield for Institutional Shares.
The yield of Institutional Shares represents the annualized rate of income
earned on an investment in Institutional Shares over a seven-day period. It is
the annualized dividends earned during the period on the investment, shown as a
percentage of the investment. The effective yield is calculated similarly to the
yield, but, when annualized, the income earned by an investment in Institutional
Shares is assumed to be reinvested daily. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield of Institutional Shares is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that
Institutional Shares would have had to earn to equal its actual yield, assuming
a specific tax rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Institutional Shares after reinvesting all income
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
Yield, effective yield, and tax-equivalent yield will be calculated separately
for Institutional Shares and Cash Series Shares. Because Cash Series Shares are
subject to 12b-1 fees, the yield, the effective yield, and the tax-equivalent
yield for Institutional Shares, will exceed the yield, the effective yield, and
the tax-equivalent yield for Cash Series Shares for the same period.
From time to time, the Fund may advertise the performance of Institutional
Shares using certain reporting services and/or compare the performance of
Institutional Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Cash Series Shares are sold primarily to retail customers of financial
institutions. Cash Series Shares are sold at net asset value. Investments in
Cash Series Shares are subject to a minimum initial investment of $10,000. Cash
Series Shares are distributed pursuant to a 12b-1 Plan adopted by the Trust
whereby the distributor is paid a fee of up to .50 of 1%, of the Cash Series
Shares' average daily net assets.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares of the Fund
than from another class of shares. While the distributor may, in addition to
fees paid pursuant to the 12b-1 Plan, pay an administrative fee to a financial
institution or broker for administrative services provided to a class, such a
fee will not be an expense of the class, but will be reimbursed to the
distributor by the investment adviser.
The amount of dividends payable to Institutional Shares will exceed that of Cash
Series Shares by the difference between class expenses and distribution expenses
borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
MINNESOTA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--CASH SERIES SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 36.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1993 1992 1991*
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------
Net investment income 0.02 0.03 0.04
- ----------------------------------------------------------------------------- --------- --------- ---------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.03) (0.04)
- ----------------------------------------------------------------------------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------- --------- --------- ---------
TOTAL RETURN** 2.02% 2.78% 3.60 (a)
- -----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------
Expenses 0.71% 0.71% 0.64 (b)
- -----------------------------------------------------------------------------
Net investment income 2.01% 2.75% 4.11 (b)
- -----------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.44% 0.44% 0.59 (b)
- -----------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------
Net assets, end of period (000 omitted) $67,521 $75,044 $69,747
- -----------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from January 7, 1991 (date of initial
public investment) to October 31, 1991.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) The voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P
PRINCIPAL OR FITCH*
AMOUNT ISSUE (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--100.2%
- -----------------------------------------------------------------------------------
MINNESOTA--99.3%
-------------------------------------------------------------------
$ 5,000,000 Anoka City, MN, 2.75% CP Solid Waste Disposal Authority (United
Power Associates)/(NRUCFC Guaranty)/(Subject to AMT), Mandatory
Tender
12/14/93 A-1 $ 5,000,000
-------------------------------------------------------------------
3,175,000 Anoka-Hennepin, MN, ISD Pound11, 3.00% GO Bonds,
2/1/94 NR(3) 3,175,000
-------------------------------------------------------------------
3,750,000 Austin, MN, ISD Pound492, 3.15% (State of Minnesota Guaranty),
9/30/94 NR(2) 3,756,614
-------------------------------------------------------------------
5,000,000 Bass Brook, MN, PCR, 2.55% CP (Minnesota Power & Light
Company)/(Mellon Bank N.A. LOC), 11/9/93 P-1 5,000,000
-------------------------------------------------------------------
1,300,000 Becker County, MN, 2.90% GO Bonds (Series 1993),
12/6/93 NR(3) 1,300,000
-------------------------------------------------------------------
4,000,000 Becker, MN, 3.00% GO BANs (Series 1993), 10/1/94 MIG1 4,000,000
-------------------------------------------------------------------
5,000,000 Becker, MN, PCR, 2.60% CP (Series 1992A)/(Northern States Power
Company Guaranty), Mandatory Tender
4/14/94 A-1+ 5,000,000
-------------------------------------------------------------------
4,000,000 Becker, MN, PCR, 2.70% CP (Series 1993A and 1993B)/ (Northern
States Power Company Guaranty), Mandatory Tender 3/22/94 A-1+ 4,000,000
-------------------------------------------------------------------
9,500,000 Bloomington, MN, 2.84% TANs ISD Pound271, 2/23/94 NR(2) 9,502,581
-------------------------------------------------------------------
5,000,000 Bloomington, MN, Multi-Family Housing, Weekly VRDNs
(Crow/Bloomington Apartments)/(Citibank N.A. LOC) P-1 5,000,000
-------------------------------------------------------------------
3,850,000 Burnsville Eagan-Savage, ISD Pound191 MN, 2.66% GO TANs (Series
93), 3/30/94 NR(3) 3,850,600
-------------------------------------------------------------------
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P
PRINCIPAL OR FITCH*
AMOUNT ISSUE (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
MINNESOTA--CONTINUED
-------------------------------------------------------------------
$ 8,265,000 Burnsville, MN, Multi-Family Housing Weekly VRDNs (Berkshire of
Burnsville)/(Sumitomo Trust & Banking, Corp., Ltd. LOC) A-2 $ 8,265,000
-------------------------------------------------------------------
1,000,000 Byron, MN, IDB Weekly VRDNs (Schmidt Printing, Inc.)/ (Norwest Bank
Minnesota LOC)/(Subject to AMT) A-1+ 1,000,000
-------------------------------------------------------------------
1,380,000 Chaska, MN, IDA Weekly VRDNs (Aeration Industries)/ (Norwest Bank
Minnesota LOC)/(Subject to AMT) A-1+ 1,380,000
-------------------------------------------------------------------
2,000,000 Coon Rapids, MN, Hospital Authority Weekly VRDNs (Series 1985)/(The
Health Central System)/(First Bank N.A. LOC) A-1 2,000,000
-------------------------------------------------------------------
5,450,000 Crystal, MN, IDA Weekly VRDNs (Crystal Gallery Mall)/ (Citibank,
N.A. LOC) P-1 5,450,000
-------------------------------------------------------------------
6,150,000 Duluth, MN, IDA Weekly VRDNs (Lake Superior Paper)/ (National
Australia Bank, Ltd. LOC) VMIG1 6,150,000
-------------------------------------------------------------------
316,536 Eden Prairie, MN, IDA Weekly VRDNs (Series 1987)/ (Minnesota Supply
Co.)/(Norwest Bank Minnesota LOC) P-1 316,536
-------------------------------------------------------------------
890,000 Eden Prairie, MN, IDR PoundS-93 Weekly VRDNs (Richard W
Cohen)/(Norwest Bank Minnesota LOC) P-1 890,000
-------------------------------------------------------------------
2,000,000 Edina, MN, ISD Pound273, 2.91% GO TANs, 3/30/94 NR(3) 2,002,068
-------------------------------------------------------------------
1,400,000 Elk River, MN, Weekly VRDNs (Tescom Corp. Project)/ (Norwest Bank
Minnesota LOC)/(Subject to AMT) P-1 1,400,000
-------------------------------------------------------------------
5,000,000 Faribault, MN, IDA Weekly VRDNs (Series 1988)/(Jerome Foods,
Inc.)/(Norwest Bank Minnesota LOC) P-1 5,000,000
-------------------------------------------------------------------
3,275,000 Forest Lake, MN, ISD Pound831, 3.04% TANs, 3/8/94 NR(3) 3,275,424
-------------------------------------------------------------------
1,175,000 Hennepin County, MN, ISD Pound286, 2.80% TANs (Brooklyn Center),
3/25/94 NR(3) 1,175,000
-------------------------------------------------------------------
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P
PRINCIPAL OR FITCH*
AMOUNT ISSUE (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
MINNESOTA--CONTINUED
-------------------------------------------------------------------
$ 2,500,000 Hubbard County, MN, Solid Waste Disposal Weekly VRDNs (Series
1990)/(Potlatch Corp.)/(Credit Suisse LOC)/(Subject to AMT) A-1+ $ 2,500,000
-------------------------------------------------------------------
4,220,000 Lakeville, MN, IDS Pound194, 3.00%, 9/30/94 NR 4,220,000
-------------------------------------------------------------------
4,000,000 Maple Grove, MN, IDA Weekly VRDNs (Series 1991A)/ (Eagle Ridge
Apartment)/(Sumitomo Bank, Ltd. LOC) A-1+ 4,000,000
-------------------------------------------------------------------
3,000,000 Maple Grove, MN, Weekly VRDNs (Series 1991B)/(Eagle Ridge
Apartment)/(First Bank N.A. LOC) A-1 3,000,000
-------------------------------------------------------------------
2,025,000 Maplewood, MN, Multi-Family Housing Weekly VRDNs (Series
1993)/(Silver Ridge)/(Federal Home Loan Bank of Chicago LOC) A-1+ 2,025,000
-------------------------------------------------------------------
2,700,000 Mendota Heights, MN, Multi-Family Revenue Bonds Weekly VRDNs
(Lexington Heights Apartments)/ (Sumitomo Bank, Ltd. LOC) A-1+ 2,700,000
-------------------------------------------------------------------
745,000 Minneapolis, MN, IDA Weekly VRDNs (JTJ Company)/ (First Bank N.A.
LOC) P-1 745,000
-------------------------------------------------------------------
20,000,000 Minneapolis, MN, Special School District, 3.00% TANs (Series 1993),
1/27/94 MIG1 20,014,825
-------------------------------------------------------------------
990,000 Minneapolis, MN, Weekly VRDNs (Great River Road)/ (Bayerische
Vereinsbank BPA) VMIG1 990,000
-------------------------------------------------------------------
1,000,000 Minnesota Energy & Economic Development Authority Hospital
Equipment Revenue, 7.90% Annual TOBs (Series 1985A)/(AMBAC
Insured), 12/1/93 NR(1) 1,003,937
-------------------------------------------------------------------
1,500,000 Minnesota Higher Education Facilities Authority Weekly VRDNs
(Carlton College Guaranty) VMIG1 1,500,000
-------------------------------------------------------------------
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P
PRINCIPAL OR FITCH*
AMOUNT ISSUE (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
MINNESOTA--CONTINUED
-------------------------------------------------------------------
$ 8,000,000 Minnesota State Commissioner of Iron Range Resources &
Rehabilitation Weekly VRDNs (Series 1991)/(Louisiana Pacific
Corp.)/(Wachovia Bank & Trust Co. LOC) P-1 $ 8,000,000
-------------------------------------------------------------------
2,700,000 Minnesota State Higher Education Coordinating Board Weekly VRDNs
(Student Loan Program)/(Series 1990)/ (First Bank, N.A.
LOC)/(Subject to AMT) VMIG1 2,700,000
-------------------------------------------------------------------
2,500,000 Minnesota State Higher Education Coordinating Board Weekly VRDNs
(Student Loan Program)/(Series 1992A)/ (Subject to AMT) VMIG1 2,500,000
-------------------------------------------------------------------
7,000,000 Minnesota State Higher Education Coordinating Board Weekly VRDNs
(Student Loan Program)/(Subject to AMT) P-1 7,000,000
-------------------------------------------------------------------
5,500,000 Minnesota State Higher Education Facilities Authority, 2.60%
Semi-annual TOBs (Carlton College Guaranty), Optional Tender 2/1/94 VMIG1 5,500,000
-------------------------------------------------------------------
3,900,000 Minnesota State Higher Education Facility Authority Weekly VRDNs
(Series 3D)/(College of St. Benedict)/ (Sumitomo Bank Ltd. LOC) VMIG1 3,900,000
-------------------------------------------------------------------
1,120,000 Minnesota State, Weekly VRDNs P-Floats VMIG1 1,120,000
-------------------------------------------------------------------
3,000,000 Minnesota State, 4.90% GO Bonds, 8/1/94 NR(2) 3,043,868
-------------------------------------------------------------------
6,800,000 Minnetonka, MN, Multi-Family Housing Weekly VRDNs (Cliffs at
Ridgedale)/(Citibank, N.A. LOC) A-1 6,800,000
-------------------------------------------------------------------
1,300,000 New Brighton, MN, IDR Weekly VRDNs (Unicare Homes Inc.)/(Banque
Paribas LOC) A-1+ 1,300,000
-------------------------------------------------------------------
4,000,000 New Hope, MN, Weekly VRDNs (Paddock Labs)/ (Norwest Bank Minnesota
LOC)/(Subject to AMT) P-1 4,000,000
-------------------------------------------------------------------
1,000,000 Northern Minnesota Municipal Power Agency, 8.75% Power Supply
Revenue Bonds (Escrowed), 1/1/94 NR(1) 1,012,472
-------------------------------------------------------------------
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P
PRINCIPAL OR FITCH*
AMOUNT ISSUE (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
MINNESOTA--CONTINUED
-------------------------------------------------------------------
$ 3,500,000 Perham, MN, IDA Weekly VRDNs (Land O' Lakes, Inc.)/ (Rabobank
Nederland LOC)/(Subject to AMT) A-1+ $ 3,500,000
-------------------------------------------------------------------
2,200,000 Port of Austin, MN, Weekly VRDNs (Mower House Color Co.)/(Norwest
Bank Minnesota LOC)/(Subject to AMT) P-1 2,200,000
-------------------------------------------------------------------
3,000,000 Rochester, MN, Health Care Facility Authority, 2.55% CP (Series
C)/(Mayo Clinic Foundation Guaranty), Mandatory Tender 2/17/94 A-1+ 3,000,000
-------------------------------------------------------------------
1,750,000 Rogers, MN, IDA Weekly VRDNs (Metal Sales Manufacturing
Corp.)/(Union Bank of Switzerland LOC)/ (Subject to AMT) P-1 1,750,000
-------------------------------------------------------------------
7,000,000 Saint Cloud, MN, Hospital Facility Authority Weekly VRDNs (Series
1990A)/(St. Cloud Hospital)/(Kredeitbank N.V. LOC) A-1+ 7,000,000
-------------------------------------------------------------------
350,000 St. Louis Park, MN, GO Weekly VRDNs (Series 1987C) VMIG1 350,000
-------------------------------------------------------------------
2,500,000 Saint Paul Port Authority, MN, Tax Increment Weekly VRDNs (Series
1991)/(First Bank N.A. LOC) A-1 2,500,000
-------------------------------------------------------------------
1,000,000 Saint Paul, MN, 2.75% GO BANs Riverfront Refunding Bonds, 2/1/94 NR(2) 1,000,000
-------------------------------------------------------------------
640,000 Saint Paul, MN, 2.75% GO BANs 2/1/94 NR(2) 640,000
-------------------------------------------------------------------
800,000 Saint Paul, MN, Housing & Redevelopment Authority Weekly VRDNs
(Concord Green)/(First Bank N.A. LOC) P-1 800,000
-------------------------------------------------------------------
5,000,000 Saint Paul, MN, Housing & Redevelopment Authority Weekly VRDNs
(District Cooling, Inc.)/(Credit Local de France LOC)/(Subject to
AMT) A-1+ 5,000,000
-------------------------------------------------------------------
600,000 Saint Paul, MN, Housing & Redevelopment Authority Weekly VRDNs
(United Way)/(First Bank N.A. LOC) A-1 600,000
-------------------------------------------------------------------
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P
PRINCIPAL OR FITCH*
AMOUNT ISSUE (NOTE 6) VALUE
<C> <S> <C> <C>
- -------------- ------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
MINNESOTA--CONTINUED
-------------------------------------------------------------------
$ 3,000,000 Saint Paul, MN, Independent School District Pound625, 2.85% TANs,
2/28/94 NR(2) $ 3,000,565
-------------------------------------------------------------------
5,900,000 South Saint Paul, MN, Housing & Redevelopment Authority Weekly
VRDNs (Health East Project)/(Series 1992)/(Sumitomo Trust and
Banking Co. Ltd. LOC) VMIG2 5,900,000
-------------------------------------------------------------------
1,135,000 Staples, MN, ISD, 3.00% GO Bonds (Series 1993),
9/10/94 NR(4) 1,135,000
-------------------------------------------------------------------
6,500,000 University of Minnesota, 2.65% Semi-Annual TOBs
(Series F), Optional Tender 2/1/94 VMIG1 6,500,000
-------------------------------------------------------------------
1,425,000 Wells, MN, 3.00% Semi-Annual TOBs (Stokely USA, Inc.)/(National
Bank of Detroit LOC)/(Subject to AMT), Mandatory Tender 12/1/93 P-1 1,425,000
-------------------------------------------------------------------
5,925,000 White Bear, MN, Weekly VRDNs (Thermoform Plastics, Inc.)/(Norwest
Bank Minnesota LOC)/(Subject to AMT) A-1+ 5,925,000
-------------------------------------------------------------------
2,000,000 Winsted, MN, IDA Weekly VRDNs (Sterner Lighting Systems)/(Fleet
National Bank LOC)/(Subject to AMT) A-1 2,000,000
------------------------------------------------------------------- ---------------
Total 231,689,490
------------------------------------------------------------------- ---------------
PUERTO RICO--0.9%
-------------------------------------------------------------------
2,200,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit
Suisse and Sumitomo Bank, Ltd. LOCs) A-1+ 2,200,000
------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS (AT AMORTIZED COST) $ 233,889,490\
------------------------------------------------------------------- ---------------
</TABLE>
\ Also represents cost for federal tax purposes.
* See Notes to Portfolio of Investments.
Note: The categories of investments are shown as a percentage of net assets
($233,386,545) at
October 31, 1993.
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
AMT--Alternative Minimum Tax
BANs--Bond Anticipation Notes
BPA--Bond Purchase Agreement
CP--Commercial Paper
GO--General Obligation
IDA--Industrial Development Authority
IDR--Industrial Development Revenue
ISD--Independent School District
LOC--Letter(s) of Credit
LOCs--Letters of Credit
NRUCFC--National Rural Utilities Cooperative Finance Corporation
PCR--Pollution Control Revenue
TANs--Tax Anticipation Notes
TOBs--Tender Option Bonds
VRDNs--Variable Rate Demand Notes
MINNESOTA MUNICIPAL CASH TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
S&P
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S
Moody's short-term ratings are designated Moody's Investment Grade (MIG OR VMIG
(see below)). The purpose of the MIG of VMIG ratings is to provide investors
with a simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
FITCH
Fitch's short-term ratings place greater emphasis on the existence of liquidity
necessary to meet the issuers' obligations in a timely manner.
F-1 Strongest degree of assurance for timely payment. Those issues determined to
provide exceptionally strong credit quality are given a plus (+)
designation.
F-2 Notes reflecting a degree of assurance for timely payment only slightly less
in degree than the highest category.
VARIABLE RATE DEMAND NOTES (VRDNS)
AND
TENDER OPTION BONDS (TOBS)
RATINGS
S&P
Standard & Poor's assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand
characteristics. Several examples are AAA/A-1+, AA/A-1K, and A/A-1. (The
definitions for the long-term and the short-term ratings are provided below.)
MOODY'S
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity.
In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the
first representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the second representing an evaluation of
the degree of risk associated with the demand feature. The VMIG rating can be
assigned a 1 or 2 designation using the same definitions described above for the
MIG rating.
FITCH
Fitch usually assigns two ratings to long-term debt issues that include
provisions for a variable rate demand feature. The long-term rating addresses
the ability of the obligor to pay debt service and the short-term rating
addresses the timely payment of the demand feature. Examples of rating
designations are as follows: AAA/F-1+, AA/F-1+, and A/F-1. (The definitions for
the long-term and short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
S&P
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1".
MOODY'S
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
The following is an explanation of the Fitch ratings. These ratings are not
referenced in the Portfolio of Investments.
FITCH
F-1 Issues assigned this rating reflect a strong degree of assurance for timely
payment. Those issuers determined to possess the strongest degree of
assurance for timely payment are denoted with a plus (+) sign designation.
F-2 Issuers carrying this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the "F-1+" and
"F-1" categories.
LONG-TERM DEBT RATINGS
(INVESTMENT GRADE)
S&P
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
principal and interest than debt rated in higher ratings categories.
MOODY'S
Aaa Bonds that are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large margin and
principal is secure. While the various protective elements are likely to
change, such changes which can be foreseen are most unlikely to impair
the fundamentally strong position of such issues.
Aa Bonds that are rated AA are judged to be of high quality by all
standards. Together with the AAA group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in AAA securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in AAA securities.
A Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present that suggest a susceptibility to impairment some time in
the future.
Baa Bonds which are rated BAA are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
FITCH
AAA Bonds that are rated AAA are of the highest credit quality. The obligor
has an exceptionally strong ability to pay debt service.
AA Bonds that are rated AA are of very high quality. The obligor has a very
strong ability to pay debt service. Debt rated in this category may also
have a (+) or (-) sign with a rating to indicate the relative position
within the rating category.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
NR indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P, Moody's, or Fitch with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated in one of the two highest short-term ratings
categories by a nationally recognized statistical ratings organization.
NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by
Fitch.
NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch.
NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "A" by Standard & Poor's, Moody's, or Fitch.
NR(4) The underlying issuer/obligor/gurantor has other outstanding long-term
debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by
Fitch.
MINNESOTA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $ 233,889,490
- ------------------------------------------------------------------------------------------------
Cash 244,164
- ------------------------------------------------------------------------------------------------
Interest receivable 1,634,135
- ------------------------------------------------------------------------------------------------
Receivable for investments sold 76,397
- ------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 4,600
- ------------------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 8,055
- ------------------------------------------------------------------------------------------------ ---------------
Total assets 235,856,841
- ------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------------
Payable for investments purchased $ 2,000,145
- ---------------------------------------------------------------------------------
Dividends payable 332,125
- ---------------------------------------------------------------------------------
Payable for Fund shares redeemed 54,189
- ---------------------------------------------------------------------------------
Accrued expenses and other liabilities 83,837
- --------------------------------------------------------------------------------- -------------
Total liabilities 2,470,296
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS for 233,386,545 shares of beneficial interest outstanding $ 233,386,545
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- ------------------------------------------------------------------------------------------------
Institutional Shares ($165,865,146 / 165,865,146 shares of beneficial interest outstanding)
$1.00
- ------------------------------------------------------------------------------------------------ ---------------
Cash Series Shares ($67,521,399 / 67,521,399 shares of beneficial interest outstanding)
$1.00
- ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 7,290,313
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 1,077,211
- ------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 333,328
- ------------------------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 169,851
- ------------------------------------------------------------------------------------
Trustees' fees 3,837
- ------------------------------------------------------------------------------------
Auditing fees 15,945
- ------------------------------------------------------------------------------------
Legal fees 13,281
- ------------------------------------------------------------------------------------
Printing and postage 36,284
- ------------------------------------------------------------------------------------
Fund share registration costs 56,233
- ------------------------------------------------------------------------------------
Distribution services fees (Note 5) 361,675
- ------------------------------------------------------------------------------------
Insurance premiums 12,460
- ------------------------------------------------------------------------------------
Miscellaneous 17,129
- ------------------------------------------------------------------------------------ -------------
Total expenses 2,097,234
- ------------------------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 915,191
- -----------------------------------------------------------------------
Waiver of distribution services fees (Note 5) 72,335 987,526
- ----------------------------------------------------------------------- ----------- -------------
Net expenses 1,109,708
- --------------------------------------------------------------------------------------------------- -------------
Net investment income $ 6,180,605
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1993 1992
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------
Net investment income $ 6,180,605 $ 6,457,573
- ----------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -----------------------------------------------------------------------------
Institutional Shares (4,723,866) (4,448,140)
- -----------------------------------------------------------------------------
Cash Series Shares (1,456,739) (2,009,433)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from distributions to shareholders (6,180,605) (6,457,573)
- ----------------------------------------------------------------------------- ---------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------
Net proceeds from sale of shares 856,352,639 761,703,208
- -----------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 1,606,041 2,151,596
- -----------------------------------------------------------------------------
Cost of shares redeemed (944,784,209) (637,992,476)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from Fund share transactions (86,825,529) 125,862,328
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets (86,825,529) 125,862,328
- -----------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------
Beginning of period 320,212,074 194,349,746
- ----------------------------------------------------------------------------- ---------------- ----------------
End of period $ 233,386,545 $ 320,212,074
- ----------------------------------------------------------------------------- ---------------- ----------------
(See Notes which are an integral part of the Financial Statements)
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company
with several portfolios. The financial statements included herein are only those
of Minnesota Municipal Cash Trust (the "Fund"). The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
Effective December 31, 1990, the Fund provides two classes of shares
("Institutional Shares" and "Cash Series Shares"). Cash Series Shares are
identical in all respects to Institutional Shares except that Cash Series Shares
are sold pursuant to a distribution plan ("Plan") adopted in accordance with
Investment Company Act Rule 12b-1. Under the Plan, the Fund paid Federated
Securities Corp. ("the distributor") a fee at an annual rate up to .50 of 1% of
the average daily net asset value of Cash Series Shares to finance any activity
which principally intended to result in the sale of Cash Series Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined
that the best method currently available for valuing portfolio securities
is amortized cost. The Fund's use of the amortized cost method to value its
portfolio securities is conditioned on its compliance with Rule 2a-7 under
the Investment Company Act of 1940.
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state, than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such
factors, at October 31, 1993, 68.7% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The
aggregate percentages by financial institution ranged from 0.4% to 10.6% of
total investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest earned net of premium, and original issue discount as
required by the Internal Revenue Code (the "Code").
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to investment companies and to distribute to shareholders
each year all of its net income. Accordingly, no provision for federal tax
is necessary. Dividends paid by the Fund representing net interest received
on tax-exempt municipal securities are not includable by shareholders as
gross income for federal income tax purposes because the Fund intends to
meet certain requirements of the Code applicable to regulated investment
companies which will enable the Fund to pay exempt-
interest dividends. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986 may be considered a tax
preference item to shareholders for the purpose of computing the
alternative minimum tax.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Fund
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objectives and policies
and not for the purpose of investment leverage. The Fund will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Fund will maintain security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
F. EXPENSES--Expenses of the Fund (other than distribution services fees) and
waivers and reimbursements, if any, are allocated to each class of shares
based on its relative daily average net assets for the period. Expenses
incurred by the Trust which do not specifically relate to an individual
fund are allocated among all funds based on a fund's relative net asset
value size or as deemed appropriate by the administrator.
G. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) DIVIDENDS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash, or in additional
shares at the net asset value on the payable date.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1993, capital paid-in aggregated $233,386,545.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SERVICE SHARES 1993 1992
<S> <C> <C>
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, beginning of period 245,167,786 124,602,806
- --------------------------------------------------------------------------------
Shares sold 610,443,315 531,157,380
- --------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 190,482 188,828
- --------------------------------------------------------------------------------
Shares redeemed (689,936,437) (410,781,228)
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period 165,865,146 245,167,786
- -------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
CASH SERIES SHARES 1993 1992
<S> <C> <C>
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, beginning of period 75,044,288 69,746,940
- --------------------------------------------------------------------------------
Shares sold 245,909,324 230,545,828
- --------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 1,415,559 1,962,768
- --------------------------------------------------------------------------------
Shares redeemed (254,847,772) (227,211,248)
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period 67,521,399 75,044,288
- -------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Management, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to .40 of 1% of the Fund's
average daily net assets. The Adviser has voluntarily agreed to waive a portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time in its sole discretion. During the fiscal year ended October 31, 1993 the
Adviser earned $1,077,211 as its advisory fee, of which $915,191 was voluntarily
waived.
Organizational expenses ($40,733) were borne initially by the Adviser. The Fund
has agreed to pay the Adviser, at an annual rate .005 of 1% of average daily net
assets until the expenses borne initially by the Adviser are reimbursed, or the
expiration of five years from August 31, 1990, the date the Trust's portfolio
became effective, whichever occurs earlier. During the fiscal year ended October
31, 1993 the Fund paid the Adviser $8,055 pursuant to this agreement.
During the fiscal year ended October 31, 1993, pursuant to Rule 17a-7 of the
Investment Company Act of 1940, the Fund engaged in purchase and sale
transactions with other Funds advised by the Adviser amounting to $378,800,000
and $486,546,962, respectively. These purchases and sales were conducted on an
arms-length basis insofar as they were transacted for cash consideration only,
at independent current market prices and without brokerage commission, fee or
other remuneration.
The Trust has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The Trust will compensate Federated Securities
Corp. ("FSC"), the principal distributor, from
the assets of the Fund, for fees it paid which relate to the distribution and
administration of the Fund's Cash Series Shares. The Plan provides that the Fund
may incur distribution expenses up to .50 of 1% of the average daily net assets
of the Cash Series Shares, annually, to pay commissions, maintenance fees and to
compensate the distributor. During the fiscal year ended October 31, 1993, FSC
earned $361,675 in distribution services fees of which $72,335 was voluntarily
waived.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Certain Officers and Trustees of the
Trust are Officers and Directors of the above corporations.
(6) CURRENT CREDIT RATINGS
Current credit ratings and related notes are unaudited.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST (Minnesota Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of
Minnesota Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
investments, as of October 31, 1993, the related statement of operations for the
year then ended, the statement of changes in net assets, and the financial
highlights (see pages 2 and 17 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of October 31, 1993,
by correspondence with the custodian and broker. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Minnesota Municipal Cash Trust, an investment portfolio of Federated Municipal
Trust, as of October 31, 1993, the results of its operations for the year then
ended, and the changes in its net assets, and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania
December 13, 1993
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Minnesota Municipal Cash Trust
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
MINNESOTA MUNICIPAL
CASH TRUST
INSTITUTIONAL SHARES
PROSPECTUS
A Non-Diversified Portfolio of
Federated Municipal Trust, an Open-End
Management Investment Company
December 31, 1993
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
0082715A-IS (12/93)
MINNESOTA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH SERIES SHARES
INSTITUTIONAL SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with
the respective prospectus for Cash Series Shares and Institutional
Shares of Minnesota Municipal Cash Trust (the "Fund") dated December
31, 1993. This Statement is not a prospectus itself. To receive a copy
of either prospectus, write or call Federated Municipal Trust.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1993
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Acceptable Investments 1
When-Issued and Delayed Delivery
Transactions 1
Temporary Investments 2
Reverse Repurchase Agreements 2
Investment Limitations 2
Minnesota Investment Risks 4
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
- ---------------------------------------------------------------
Officers and Trustees 5
The Funds 7
Fund Ownership 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 8
- ---------------------------------------------------------------
Adviser to the Fund 8
Advisory Fees 8
ADMINISTRATIVE SERVICES 8
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 8
- ---------------------------------------------------------------
PURCHASING SHARES 9
- ---------------------------------------------------------------
Distribution Plan (Cash Series Shares Only) 9
Conversion to Federal Funds 9
DETERMINING NET ASSET VALUE 9
- ---------------------------------------------------------------
Use of the Amortized Cost Method 9
REDEEMING SHARES 10
- ---------------------------------------------------------------
Redemption in Kind 11
TAX STATUS 11
- ---------------------------------------------------------------
The Fund's Tax Status 11
YIELD 11
- ---------------------------------------------------------------
EFFECTIVE YIELD 11
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 12
- ---------------------------------------------------------------
Tax-Equivalency Table 12
PERFORMANCE COMPARISONS 12
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was
established as a Massachusetts business trust under a Declaration of Trust dated
September 1, 1989.
Shares of the Fund are offered in two classes, known as Cash Series Shares and
Institutional Shares (individually and collectively referred to as "Shares").
This Combined Statement of Additional Information relates to the above-mentioned
Shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income exempt from federal
regular income tax and the regular personal income taxes imposed by the State of
Minnesota consistent with stability of principal. The investment objective
cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Minnesota and of other states, territories and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from both federal regular income tax and Minnesota state
income tax imposed upon non-corporate taxpayers.
When determining whether a Minnesota municipal security presents minimal credit
risks, the investment adviser considers the creditworthiness of the issuer of
the security, the issuer of a demand feature if the Fund has the unconditional
right to demand payment for the security, or the guarantor of payment by either
of those issuers.
If a security loses its rating or the security's rating is reduced below the
required minimum after the Fund purchased it, the Fund is not required to sell
the security. The investment adviser considers this event, however, in its
determination of whether the Fund should continue to hold the security in its
portfolio. If ratings made by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") change because of changes in those
organizations or in their rating systems, the Fund will try to use comparable
ratings as standards in accordance with the investment policies described in the
Fund's prospectuses.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests which represent undivided proportional interests in lease
payments by a governmental or nonprofit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that
the participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they became
due. In the event of a default or failure of appropriation, unless the
participation interests are credit enhanced, it is unlikely that the
participants would be able to obtain an acceptable substitute source of
payment.
Under the criteria currently established by the Board of Trustees
("Trustees"), the Fund's investment adviser must consider the following
factors in determining the liquidity of municipal lease securities: (1)
the frequency of trades and quotes for the security; (2) the volatility
of quotations and trade prices for the security; (3) the number of
dealers willing to purchase or sell the security and the number of
potential purchasers; (4) dealer undertakings to make a market in the
security; (5) the nature of the security and the nature of the
marketplace trades; (6) the rating of the security and the financial
condition and prospects of the issuer of the security; (7) such other
factors as may be relevant to the Fund's ability to dispose of the
security; (8) whether the lease can be terminated by the lessee; (9) the
potential recovery, if any, from a sale of the leased property upon
termination of the lease; (10) the lessee's general credit strength; (11)
the likelihood that the lessee will discontinue appropriating funding for
the leased property because the property is no longer deemed essential to
its operations; and (12) any credit enhancement or legal recourse
provided upon an event of nonappropriation or other termination of the
lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
The Fund may engage in these transactions to an extent that would cause the
segregation of an amount up to 20% of the total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in high quality temporary investments during times of
unusual market conditions for defensive purposes and to maintain liquidity.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale
to repurchase them at a mutually agreed upon time and price within one
year from the date of acquisition. The Fund or its custodian will take
possession of the securities subject to repurchase agreements and these
securities will be marked to market daily. To the extent that the
original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund will only enter
into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's
investment adviser to be creditworthy pursuant to guidelines established
by the Trustees.
From time to time, such as when suitable Minnesota municipal securities are not
available, the Fund may maintain a portion of its assets in cash. Any portion of
the Fund's assets maintained in cash will reduce the amount of assets in
Minnesota municipal securities and thereby reduce the Fund's yield.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. These transactions are
similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed-upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for the
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts
borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess of 5% of
its total assets are outstanding.
During the period any reverse repurchase agreements are outstanding, the
Fund will restrict the purchase of portfolio securities to money market
instruments maturing on or before the expiration date of the reverse
repurchase agreements, but only to the extent necessary to assure
completion of the reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
securities subject to restrictions on resale under federal securities
law, except for certain restricted securities which meet the criteria for
liquidity established by the Trustees.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or nonpublicly issued Minnesota municipal securities or
temporary investments or enter into repurchase agreements, in accordance
with its investment objective, policies, limitations, or its Declaration
of Trust.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of
the value of its assets in cash or cash items (including instruments
issued by a U.S. branch of a domestic bank or savings and loan having
capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment), securities issued or guaranteed by the U.S.
government, its agencies, or instrumentalities, or instruments secured by
these money market instruments, such as repurchase agreements.
The above investment limitations cannot be changed without shareholder approval.
The Fund does not consider the issuance of separate classes of shares to involve
the issuance of "senior securities" within the meaning of the investment
limitation set forth above. The following limitations, however, may be changed
by the Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, reorganization or other
acquisition.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
industrial development bonds or other municipal securities where the
principal and interest are the responsibility of companies (or
guarantors, where applicable) with less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs, or leases.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of its net assets in securities
which are illiquid, including repurchase agreements providing for
settlement more than seven days after notice, certain restricted
securities not determined by the Trustees to be liquid, and
non-negotiable fixed time deposits with maturities over seven days.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its net assets during the coming fiscal year.
MINNESOTA INVESTMENT RISKS
Minnesota (the "State") has a diversified economy, the structure of which has
increasingly come to resemble the nation as a whole. Minnesota's emergence as a
regional center is evidenced by the comparatively high rates of employment
growth in trade, finance, insurance and service industries over the decade.
Agriculture, which had been severely affected since 1981, appears to be
improving with land values now stabilizing at levels seen in the early 1980's.
Employment growth has slowed due to the current economic downturn; however,
unemployment rates remain below the national level despite problems in the
mainframe computer and mining industries. Personal income has grown more rapidly
than that of the region and the nation as a whole, with personal income per
capita remaining slightly above the national average.
Minnesota's financial operations have been stable in recent years, following a
period of volatility in the early 1980's. Through frequent reviews of revenue
forecasts and timely legislative action, the State has maintained balanced
operations. Almost all of Minnesota's debt is general obligation, with general
purpose bonds serviced from the General Fund (with additional pledges of
cigarette tax, sales taxes from health and sports clubs, and lottery net
proceeds) and highway bonds serviced from the Highway User Tax Fund. Debt level
is moderate, amortization is rapid, and debt service is a minor burden (less
than 3% of General Fund Revenues).
Although Minnesota's debt management policies have been conservative, concerns
have developed with the State's recent agreement to proceed with a $750 million
financing in conjunction with Northwest Airlines and Metropolitan Airports
Commission (MAC) aimed at assisting the financially troubled airline. Although
the State's maximum general obligation exposure of $175 million is well within
its debt capacity, credit concerns lie with the financial viability of Northwest
Airlines. The State's issuance of the bonds had been delayed by a lawsuit
challenging the State's ability to issue bonds for a private entity. In
November, the Minnesota Supreme Court cleared the way for the State to issue the
bonds by upholding a lower court's dismissal of the suit. To date, there have
been no bonds for Northwest Airlines' facilities and an issuance schedule has
not been developed as yet. The State views the bond issuances as facilitating
economic development through the expansion of Northwest's operations and the
addition of about 2,000 new jobs.
The Fund's concentration in municipal securities issued by the State and its
political subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities. The ability of the
State or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political, and demographic
conditions within the State; and the underlying fiscal condition of the State,
its counties, and its municipalities.
FEDERATED MUNICIPAL TRUST MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Management,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, Inc., and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue\* Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer and
Director, Trustee, or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company. Mr. Donahue is the
father of
J. Christopher Donahue, Vice President of the Trust.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President,
Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate
Department Village Development Corporation; General Partner or Trustee in private
John R. Wood and real estate ventures in Southwest Florida; Director, Trustee, or
Associates, Inc., Realtors Managing General Partner of the Funds; formerly, President, Naples
3255 Tamiami Trail North Property Management, Inc.
Naples, FL
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza-- Director, Trustee, or Managing General Partner of the Funds; formerly,
23rd Floor Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Pittsburgh, PA Director, Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director,
Concord, MA Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds.
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly,
Boston, MA President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare,
5916 Penn Mall Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer
Learning Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho
University of Pittsburgh Slovak Management Center; Director, Trustee, or Managing General
Pittsburgh, PA Partner of the Funds; President Emeritus, University of Pittsburgh;
formerly, Chairman, National Advisory Council for Environmental Policy
and Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
Glen R. Johnson* President and Trustee, Federated Investors; President and/or Trustee of some of the
Federated Investors Tower Trustee Funds; staff member, Federated Securities Corp. and Federated
Pittsburgh, PA Administrative Services, Inc.
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated
Federated Investors Tower Advisers, Federated Management, and Federated Research; Trustee,
Pittsburgh, PA Federated Services Company; President and Director, Federated
Administrative Services, Inc.; President or Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the
Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee
of the Trust.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director, Federated Securities Corp.; President or Vice President of
Pittsburgh, PA the Funds; Director or Trustee of some of the Funds.
Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice
Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Trustee, Federated Services Company; Executive Vice
President, Treasurer, and Director, Federated Securities Corp.;
Chairman, Treasurer, and Director, Federated Administrative Services,
Inc.; Trustee or Director of some of the Funds; Vice President and
Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors Tower and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary, and Director,
Federated Administrative Services, Inc.; Director and Executive Vice
President, Federated Securities Corp.; Vice President and Secretary of
the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower and Trustee President, Federated Securities Corp.; President and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Resarch; Vice President
of the Funds; Directors, Trustee, or Managing General Partner of some
of the Funds; formerly, Vice President, The Standard Fire Insurance
Company and President of its Federated Research Division.
</TABLE>
*This Trustee is deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940, as amended.
\Members of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series; Cash Trust Series II;
Cash Fund Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; FT Series, Inc.; Federated ARMs Funds; Federated Exchange Fund,
Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government
Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority
Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government
Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.;
High Yield Cash Trust; Intermediate Municipal Trust; Investment Series Funds,
Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High
Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term
Trust, Inc.-1999; Liberty U.S. Government Money Market Trust; Liberty Utility
Fund, Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market Management, Inc.;
Money Market Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; New York Municipal Cash Trust; 111 Corcoran Funds; The Passageway Funds;
The Planners Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds;
Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund, Inc; Sunburst Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term
U.S. Government Securities; and Trust for U.S. Treasury Obligations.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding Shares.
As of November 29, 1993, no shareholder of record owned 5% or more of the
outstanding Cash Series Shares of the Fund.
As of November 29, 1993, the following shareholders of record owned 5% or more
of the outstanding Institutional Shares of the Fund: Norwest Bank Minneapolis,
Minneapolis, Minnesota, owned approximately 11,458,678 Shares (7.46%); Resource
Bank & Trust Co., Minneapolis, Minnesota, owned approximately 23,469,508 Shares
(15.27%); and VAR & Co., St. Paul, Minnesota, owned approximately 82,695,203
shares (53.82%).
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgement or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All of the Class A (voting) shares of Federated Investors
are owned by a trust, the trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue. John F. Donahue is Chairman and Trustee,
Federated Management; Chairman and Trustee, Federated Investors; and Chairman
and Trustee of the Trust. John A. Staley, IV, is President and Trustee,
Federated Management; Vice President and Trustee, Federated Investors; Executive
Vice President, Federated Securities Corp.; and Vice President of the Trust. J.
Christopher Donahue is Trustee, Federated Management; President and Trustee,
Federated Investors; President and Director, Federated Administrative Services,
Inc.; and Vice President of the Trust. John W. McGonigle is Vice President,
Secretary, and Trustee, Federated Management; Trustee, Vice President,
Secretary, and General Counsel, Federated Investors; Director, Executive Vice
President, and Secretary, Federated Administrative Services, Inc.; Director and
Executive Vice President, Federated Securities Corp.; and Vice President and
Secretary of the Trust.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
October 31, 1993, 1992, and 1991, the Fund's adviser earned $1,077,211,
$865,213, and $637,974, respectively, of which $915,191, $734,973, and $0,
respectively, were voluntarily waived, respectively, because of undertakings to
limit the Fund's expenses.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
These arrangements are not part of the advisory contract and have been
established only to comply with applicable state authorities. They may be
amended or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund at approximate cost.
For the fiscal years ended October 31, 1993, 1992, and 1991, the Fund incurred
costs for administrative services of $333,328, $258,623, and $257,677,
respectively. John A. Staley, IV, an officer of the Trust, and Dr. Henry J.
Gailliot, an officer of Federated Management, the adviser to the Fund, each
holds approximately 15% and 20%, respectively, of the outstanding common stock
and serve as directors of Commercial Data Services, Inc., a company which
provides computer processing services to Federated Administrative Services, Inc.
For the fiscal years ended October 31, 1993, 1992, and 1991, Federated
Administrative Services, Inc. paid approximately $165,931, $189,741, and
$187,677, respectively, for services provided by Commercial Data Services, Inc.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the investment adviser will generally use those
who are recognized dealers in specific portfolio instruments, except when a
better price and execution of the order can be obtained elsewhere. The adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve wire system are open for business.
The procedure for purchasing Shares is explained in the respective prospectus
under "Investing in Cash Series Shares" and "Investing in Institutional Shares."
DISTRIBUTION PLAN (CASH SERIES SHARES ONLY)
With respect to the Cash Series Shares class of the Fund, the Trust has adopted
a Plan pursuant to Rule 12b-1 which was promulgated by the Securities and
Exchange Commission under the Investment Company Act of 1940. The Plan provides
for payment of fees to Federated Securities Corp. to finance any activity which
is principally intended to result in the sale of the Fund's Shares subject to
the Plan. Such activities may include the advertising and marketing of Shares;
preparing, printing and distributing prospectuses and sales literature to
prospective shareholders, brokers or administrators; and implementing and
operating the Plan. Pursuant to the Plan, the distributor may pay fees to
brokers for distribution and administrative services and to administrators for
administrative services as to Shares. The administrative services are provided
by a representative who has knowledge of the shareholder's particular
circumstances and goals, and include, but are not limited to: communicating
account openings; communicating account closings; entering purchase
transactions; entering redemption transactions; providing or arranging to
provide accounting support for all transactions, wiring funds and receiving
funds for Share purchases and redemptions, confirming and reconciling all
transactions; reviewing the activity in Fund accounts; providing training and
supervision of broker personnel; posting and reinvesting dividends to Fund
accounts or arranging for this service to be performed by the Fund's transfer
agent; and maintaining and distributing current copies of prospectuses and
shareholder reports to the beneficial owners of Shares and prospective
shareholders.
The Trustees expect that the adoption of the Plan will result in the sale of a
sufficient number of Shares so as to allow the Fund to achieve economic
viability. It is also anticipated that an increase in the size of the Fund will
facilitate more efficient portfolio management and assist the Fund in seeking to
achieve its investment objective.
For the fiscal years ended October 31, 1993, 1992, and 1991, brokers and
administrators (financial institutions) earned fees in the amount of $361,675,
$365,184, and $205,313, respectively, of which $72,335, $73,037, and $65,064,
respectively, were voluntarily waived, respectively, pursuant to the
distribution plan.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. State Street Bank, and Trust
Company acts as the shareholder's agent in depositing checks and converting them
to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a Share at $1.00. The days on which
net asset value is calculated by the Fund are described in the respective
prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7, as amended (the
"Rule"), promulgated by the Securities and Exchange Commission under the
Investment Company Act of 1940. Under the Rule, the Trustees must establish
procedures reasonably
designed to stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party (1) on no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same-day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
Although demand features and standby commitments are techniques and are defined
as "puts" under the Rule, the Fund does not consider them to be "puts" as that
term is used in the Fund's investment limitations. Demand features and standby
commitments are features which enhance an instrument's liquidity, and the
investment limitation which proscribes puts is designed to prohibit the purchase
and sale of put and call options and is not designed to prohibit the Fund from
using techniques which enhance the liquidity of portfolio instruments.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.5% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risk and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than 397 days can be
purchased by the Fund. For a discussion of the treatment of variable rate
municipal securities with demand payment features, refer to "Variable
Rate Demand Notes" in the prospectus.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on Shares of
the Fund, computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above, may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on Shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
respective prospectus under "Redeeming Cash Series Shares" and "Redeeming
Institutional Shares." Although State Street Bank does not charge for telephone
redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective Fund's portfolio. To the extent
available, such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem Shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net asset
value of the respective class during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for Cash Series Shares for the seven-day period ended October
31, 1993 was 1.98%. The yield for Institutional Shares was 2.38% for the same
period.
The Fund calculates its yield daily, for both classes of shares, based upon the
seven day period ending on the day of the calculation, called the "base period."
This yield is computed by:
determining the net change in the value of a hypothetical account with a balance
of one share at the beginning of the base period, with the net change excluding
capital changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares;
dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, the performance will be reduced for those shareholders paying
those fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Fund's effective yield for Cash Series Shares for the seven-day period ended
October 31, 1993 was 2.00%. The effective yield for Institutional Shares was
2.41% for the same period.
The Fund's effective yield for both classes of Shares is computed by compounding
monthly the unannualized base period return by:
adding 1 to the base period return;
raising the sum to the 365/7th power; and
subtracting 1 from the result.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The Fund's tax-equivalent yield for Cash Series Shares for the seven-day period
ended October 31, 1993 was 3.12%. The tax-equivalent yield for Institutional
Shares was 3.75% for the same period.
The tax-equivalent yield for both classes of Shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that either class of
Shares would have had to earn to equal its actual yield, assuming a 28% federal
tax rate% and the 8.5% regular personal income tax rate imposed by Minnesota and
assuming that income earned by the Fund is 100% tax-exempt on a regular federal,
state, and local basis.
TAX-EQUIVALENCY TABLE
Both classes of Shares may also use a tax-equivalency table in advertising and
sales literature. The interest earned by the municipal securities in the Fund's
portfolio generally remains free from federal regular income tax, and from the
regular personal income tax imposed by Minnesota*. As the table below indicates,
a "tax-free" investment is an attractive choice for investors, particularly in
times of narrow spreads between "tax-free" and taxable yields.
<TABLE>
<S> <C> <C> <C> <C> <C>
TAXABLE YIELD EQUIVALENT FOR 1993
STATE OF MINNESOTA
- ----------------------------------------------------------------------------------------------------------------------------
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
23.00% 36.50% 39.50% 44.50% 48.10%
- ----------------------------------------------------------------------------------------------------------------------------
JOINT $1- $36,901- $89,151- $140,001- Over
RETURN: 36,900 89,150 140,000 250,000 $250,000
SINGLE $1- $22,101- $53,501- $115,001- Over
RETURN: 22,100 53,500 115,000 250,000 $250,000
- ----------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
- ----------------------------------------------------------------------------------------------------------------------------
1.50% 1.95% 2.36% 2.48% 2.70% 2.89%
2.00 2.60 3.15 3.31 3.60 3.85
2.50 3.25 3.94 4.13 4.50 4.82
3.00 3.90 4.72 4.96 5.41 5.78
3.50 4.55 5.51 5.79 6.31 6.74
4.00 5.19 6.30 6.61 7.21 7.71
4.50 5.84 7.09 7.44 8.11 8.67
5.00 6.49 7.87 8.26 9.01 9.63
5.50 7.14 8.66 9.09 9.91 10.60
6.00 7.79 9.45 9.92 10.81 11.56
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The above chart is for illustrative purposes only. It is not an indicator of
past or future performance of either class of Shares.
*Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local regular or alternative minimum taxes.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance for both classes of Shares depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates on money market instruments;
changes in the Fund's or either class of Share's expenses; and
the relative amount of Fund cash flow.
From time to time, the Fund may advertise the performance of both classes of
Shares compared to similar funds or portfolios using certain indices, reporting
services, and financial publications. These may include the following:
LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "money market
fund" category in advertising and sales literature.
Investors may use such an index in addition to the prospectus of either class of
Shares to obtain a more complete view of the performance of that class before
investing. Of course, when comparing performance of either class of
Shares to any index, factors such as composition of the index and prevailing
market conditions should be considered in assessing the significance of such
comparisons.
When comparing funds using reporting services, or total return and yield,
investors should take into consideration any relevant differences in funds such
as permitted portfolio composition and methods used to value portfolio
securities and compute offering price.
Advertisements and other sales literature for both classes of Shares may refer
to total return. Total return is the historic change in the value of an
investment in either class of Shares based on the monthly reinvestment of
dividends over a specified period of time.
0082715B (12/93) 1
NEW JERSEY MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of New Jersey Municipal Cash Trust (the "Fund") offered
by this prospectus represent interests in a non-diversified portfolio of
securities which is one of a series of investment portfolios in Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The investment objective of the Fund is to provide current income
exempt from federal regular income tax and the New Jersey state income tax
imposed upon non-corporate taxpayers consistent with stability of principal. The
Fund invests primarily in short-term New Jersey municipal securities, including
securities of states, territories, and possessions of the United States, which
are not issued by or on behalf of New Jersey or its political subdivisions and
financing authorities, which are exempt from the federal regular and New Jersey
state income tax imposed upon non-corporate taxpayers. Institutional Shares of
the Fund are sold at net asset value, without a sales load.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THE INSTITUTIONAL SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in Institutional Shares. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for
Institutional Shares and Institutional Service Shares dated December 31, 1993,
with the Securities and Exchange Commission. The information contained in the
Combined Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 31, 1993
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Variable Rate Demand Notes 4
Participation Interests 4
Municipal Leases 4
Ratings 4
Credit Enhancement 5
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed
Delivery Transactions 5
Temporary Investments 5
New Jersey Municipal Securities 6
Standby Commitments 6
New Jersey Investment Risks 6
Non-Diversification 7
Investment Limitations 7
Regulatory Compliance 8
FEDERATED MUNICIPAL TRUST INFORMATION 8
- ------------------------------------------------------
Management of Federated Municipal Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Institutional Shares 9
Administration of the Fund 9
Administrative Services 9
Custodian 9
Transfer Agent and Dividend
Disbursing Agent 9
Legal Counsel 9
Independent Public Accountants 9
NET ASSET VALUE 9
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 10
- ------------------------------------------------------
Share Purchases 10
By Wire 10
By Mail 10
Minimum Investment Required 10
What Shares Cost 10
Subaccounting Services 11
Certificates and Confirmations 11
Dividends 11
Capital Gains 11
REDEEMING INSTITUTIONAL SHARES 11
- ------------------------------------------------------
Telephone Redemption 11
Written Requests 12
Signatures 12
Receiving Payment 12
Redemption Before Purchase
Instruments Clear 12
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 13
- ------------------------------------------------------
Voting Rights 13
Massachusetts Partnership Law 13
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
New Jersey Tax Considerations 14
Other State and Local Taxes 15
PERFORMANCE INFORMATION 15
- ------------------------------------------------------
OTHER CLASSES OF SHARES 15
- ------------------------------------------------------
Financial Highlights--
Institutional Service Shares 17
FINANCIAL STATEMENTS 18
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 33
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................................................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................................... None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)................................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable)...................................... None
Exchange Fee............................................................................................ None
ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)....................................................................... 0.04%
12b-1 Fee............................................................................................... None
Other Expenses.......................................................................................... 0.51%
Total Institutional Shares Operating Expenses (2)............................................. 0.55%
</TABLE>
- ---------
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the managment fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%.
(2) The Total Institutional Shares Operating Expenses in the table above are
based on expenses expected during the fiscal year ending October 31, 1994.
The Total Institutional Shares Operating Expenses were 0.46% for the fiscal
year ended October 31, 1993, and were 0.91% absent the voluntary waiver of
the managment fee and the reimbursement of certain other operating expenses.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SHARES OF THE
FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF
THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SHARES" AND
"FEDERATED MUNICIPAL TRUST INFORMATION." Wire-transferred redemptions of less
than $5,000 may be subject to additional fees.
<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. As noted in the table above, the Fund charges no redemption
fee for Institutional Shares.......................................... $6 $18 $31 $69
</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.
The information set forth in the foregoing table and example relates only
to Institutional Shares of the Fund. The Fund also offers another class of
shares called Institutional Service Shares. Institutional Service Shares and
Institutional Shares are subject to certain of the same expenses; however,
Institutional Service Shares are subject to a 12b-1 fee of 0.10%. See "Other
Classes of Shares."
NEW JERSEY MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 33.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C> <C>
1993 1992 1991*
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------
Net investment income 0.02 0.03 0.04
- ---------------------------------------------------------------------------------- --------- --------- ---------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.03) (0.04)
- ---------------------------------------------------------------------------------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------- --------- --------- ---------
TOTAL RETURN** 2.22% 2.96% 3.87%(a)
- ----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------
Expenses 0.46% 0.45% 0.27%(b)
- ----------------------------------------------------------------------------------
Net investment income 2.19% 2.86% 4.19%(b)
- ----------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.45% 0.51% 0.67%(b)
- ----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $66,346 $57,657 $39,423
- ----------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 13, 1990 (date of initial
public investment) to October 31, 1991.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Trustees ("Trustees") have established two classes of
shares, known as Institutional Shares and Institutional Service Shares. This
prospectus relates only to Institutional Shares of the Fund.
Institutional Shares ("Shares") of the Fund are designed for the investment of
moneys held by financial institutions in a fiduciary capacity. A minimum initial
investment of $25,000 over a 90-day period is required. The Fund may not be a
suitable investment for non-New Jersey taxpayers or retirement plans since it
invests primarily in New Jersey municipal securities.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal regular income tax and the New Jersey state income tax imposed upon
non-corporate taxpayers consistent with stability of principal. The investment
objective cannot be changed without approval of shareholders. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than New Jersey.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of New Jersey municipal securities with remaining maturities of 13 months or
less at the time of purchase by the Fund. As a matter of investment policy,
which cannot be changed without approval of shareholders, the Fund invests its
assets so that at least 80% of its annual interest income is exempt from federal
regular income tax and New Jersey state income tax imposed upon non-corporate
taxpayers. The average maturity of the securities in the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less. Unless indicated
otherwise, the investment policies may be changed by the Trustees without the
approval of shareholders. Shareholders will be notified before any material
changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued
by or on behalf of New Jersey and its political subdivisions and financing
authorities, and obligations of other states, territories and possessions of the
United States, including the District of Columbia, and any political subdivision
or financing authority of any of these, the income from which is, in the opinion
of qualified legal counsel, exempt from both federal regular income tax and New
Jersey state income tax imposed
upon non-corporate taxpayers. Examples of New Jersey municipal securities
include, but are not limited to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
municipal securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days' prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS. The Fund may purchase interests in municipal
securities from financial institutions such as commercial and investment
banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying municipal securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and may be considered to be illiquid. They may take the form
of a lease, an installment purchase contract, a conditional sales contract,
or a participation certificate on any of the above.
RATINGS. The New Jersey municipal securities in which the Fund invests must
either be rated in one of the two highest short-term rating categories by one or
more nationally recognized statistical rating organizations ("NRSROs") or be of
comparable quality to securities having such ratings. An NRSRO's two highest
rating categories are determined without regard for sub-categories and
gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc.
("Moody's"), or FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service, Inc.
("Fitch") are all considered rated in one of the two highest short-term rating
categories. The Fund will follow applicable regulations in determining whether a
security rated by more than one NRSRO can be treated as being in one of the two
highest short-term rating categories; currently, such
securities must be rated by two NRSROs in one of their two highest categories.
See "Regulatory Compliance."
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Trustees, certain restricted securities are considered
liquid. To the extent restricted securities are deemed to be illiquid, the Fund
will limit their purchase, together with other securities considered to be
illiquid, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase New Jersey
municipal securities on a when-issued or delayed delivery basis. In when-issued
and delayed delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term non-New Jersey municipal
tax-exempt obligations or other taxable temporary investments. All temporary
investments will satisfy the same credit quality standards as the Fund's
acceptable investments. See "Ratings" above. Temporary investments include:
notes issued by or on behalf of municipal or corporate issuers; marketable
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; and repurchase agreements (arrangements in which banks,
broker/dealers, and other recognized financial institutions sell the Fund a
temporary investment and agree to repurchase it at a mutually agreed upon time
and price).
Although the Fund is permitted to make taxable temporary investments, there is
no current intention of generating income subject to federal regular income tax
or New Jersey state income tax imposed upon non-corporate taxpayers.
NEW JERSEY MUNICIPAL SECURITIES
New Jersey municipal securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
New Jersey municipal securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS
Some securities dealers are willing to sell municipal securities to the Fund
accompanied by their commitments to repurchase the municipal securities prior to
maturity, at the Fund's option, for the amortized cost of the municipal
securities at the time of repurchase. These arrangements are not used to protect
against changes in the market value of municipal securities. They permit the
Fund, however, to remain fully invested and still provide liquidity to satisfy
redemptions. The cost of municipal securities accompanied by these "standby"
commitments could be greater than the cost of municipal securities without such
commitments. Standby commitments are not marketable or otherwise assignable and
have value only to the Fund. The default or bankruptcy of a securities dealer
giving such a commitment would not affect the quality of the municipal
securities purchased. However, without a standby commitment, these securities
could be more difficult to sell. The Fund enters into standby commitments only
with those dealers whose credit the investment adviser believes to be of high
quality.
NEW JERSEY INVESTMENT RISKS
Yields on New Jersey municipal securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the State of New Jersey or its
municipalities could impact the Fund's portfolio. The ability of the Fund to
achieve its investment objective also depends on the continuing ability of the
issuers of New Jersey municipal securities and demand features for such
securities, or the credit enhancers of either, to meet their obligations for the
payment of interest and principal when due.
Investing in New Jersey municipal securities which meet the Fund's quality
standards may not be possible if the State of New Jersey or its municipalities
do not maintain their high quality, short-term credit ratings. In addition,
certain New Jersey constitutional amendments, legislative measures, executive
orders, administrative regulations, and voter initiatives could result in
adverse consequences affecting New Jersey municipal securities. An expanded
discussion of the current economic risks associated with the purchase of New
Jersey municipal securities is contained in the Combined Statement of Additional
Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified investment portfolio because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, with
regard to at least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following investment limitation, however, can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective.
The Fund will not invest more than 5% of its total assets in industrial
development bonds or other municipal securities when the payment of principal
and interest is the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations, including the
operation of any predecessor.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Combined Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which regulates
money market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF FEDERATED MUNICIPAL TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of
Trustees is responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for the voluntary waiver of the advisory
fee by the adviser, the adviser may voluntarily waive some or all of the
advisory fee. This does not include reimbursement to the Fund of any
expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The adviser can terminate this voluntary waiver
of expenses at any time at its sole discretion. The adviser has also
undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the Trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional Shares
of the Fund. It is a Pennsylvania corporation organized on November 14, 1969,
and is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary
of Federated Investors, provides the Fund with the administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services, Inc., provides these at approximate cost.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per Share is determined by adding the interest of the Shares in the value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in liabilities of the Fund and those attributable to Shares, and dividing the
remainder by the total number of Shares outstanding.
The Fund, of course, cannot guarantee that its net asset value will always
remain at $1.00 per Share.
INVESTING IN INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open for business. Shares may be purchased either by
wire or by mail. The Fund reserves the right to reject any purchase request.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) that same day. Federal funds should be wired as follows: State Street Bank
and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
New Jersey Municipal Cash Trust--Institutional Shares; Fund Number (this number
can be found on the account statement or by contacting the Fund); Group Number
or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on days on which the New York Stock Exchange is
closed and on federal holidays restricting wire transfers.
BY MAIL. To purchase Shares by mail, send a check made payable to New Jersey
Municipal Cash Trust--Institutional Shares to the Trust's transfer agent,
Federated Services Company, c/o State Street Bank and Trust Company, P.O. Box
8602, Boston, Massachusetts 02266-8602. Orders by mail are considered received
when payment by check is converted by State Street Bank into federal funds. This
is normally the next business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund. Individual accounts
established through a bank or broker may be subject to a different minimum
investment requirement.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a bank or broker may be charged an additional service fee by that
bank or broker.
The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Financial
institutions holding Shares in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the financial institution with regard to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the day after the check is converted, upon
instruction of the transfer agent, into federal funds. Dividends are
automatically reinvested on payment dates in additional Shares unless cash
payments are requested on an application or by contacting the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses,
if any, could result in a decrease in dividends. If, for some extraordinary
reason, the Fund realizes net long-term or short-term capital gains, it will
distribute them at least once every 12 months.
REDEEMING INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund. Redemption
requests received before 12:00 noon (Eastern time) are not entitled to that
day's dividend. A daily dividend will be paid on Shares redeemed if the
redemption request is received after 12:00 noon (Eastern time). However, the
proceeds are not wired until the following business day. If, at any time, the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders will be promptly notified.
An authorization form permitting the Fund to accept redemption requests by
telephone must first be completed. Authorization forms and information on this
service are available from Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, shareholders may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as Written Requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name and class of shares,
his account number, and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, the proceeds from the redemption of those
Shares are not available, and the Shares may not be exchanged, until the Fund or
its agents are reasonably certain that the purchase check has cleared, which
could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of all series of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for such
acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument that the
Trust or its Trustees enter into or sign.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, 75% of the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
NEW JERSEY TAX CONSIDERATIONS
Under existing New Jersey law, distributions made by the Fund will not be
subject to New Jersey income tax to the extent that such distributions qualify
as exempt interest dividends under the Internal Revenue Code, and are
attributable to interest or gain derived by the Fund from (i) obligations issued
by or on behalf of the State of New Jersey or any county, municipality, school
or other district, agency, authority, commission, instrumentality, public
corporation, body corporate and politic or political subdivision of New Jersey;
or (ii) obligations (such as obligations of the United States) that are
statutorily free from New Jersey taxation under federal or New Jersey state
laws. Conversely, to the extent that distributions by the Fund are attributable
to other types of obligations, such distributions will not be exempt from New
Jersey income tax.
Distributions received by a corporate shareholder from the Fund will not be
exempt from New Jersey corporation business tax or New Jersey corporation income
tax.
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from regular state income taxes in
states other than New Jersey or from personal property taxes. State laws differ
on this issue and shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield, effective yield, and
tax-equivalent yield for Institutional Shares.
The yield of Institutional Shares represents the annualized rate of income
earned on an investment in Institutional Shares over a seven-day period. It is
the annualized dividends earned during the period on the investment, shown as a
percentage of the investment. The effective yield is calculated similarly to the
yield, but, when annualized, the income earned by an investment in Institutional
Shares is assumed to be reinvested daily. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield of Institutional Shares is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that the
Institutional Shares would have had to earn to equal their actual yield,
assuming a specific tax rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Institutional Shares after reinvesting all income
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
Yield, effective yield, and tax-equivalent yield will be calculated separately
for Institutional Shares and Institutional Service Shares. Because Institutional
Service Shares are subject to 12b-1 fees, the yield, the effective yield, and
the tax-equivalent yield for Institutional Shares will exceed the yield, the
effective yield, and the tax-equivalent yield for Institutional Service Shares
for the same period.
From time to time, the Fund may advertise the performance of Institutional
Shares using certain reporting services and/or compare the performance of
Institutional Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Service Shares are sold to accounts for which financial
institutions act in an agency capacity. Institutional Service Shares are sold at
net asset value. Investments in Institutional Service Shares are also subject to
a minimum initial investment of $25,000.
Institutional Service Shares are distributed pursuant to a 12b-1 Plan adopted by
the Trust whereby the distributor is paid a fee of .10 of 1% of the
Institutional Service Shares' average daily net assets. Institutional Shares are
distributed without a 12b-1 Plan.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares of the Fund
than from another class of shares depending upon which class of shares of the
Fund is sold. While the distributor may, in addition to fees paid pursuant to
the 12b-1 Plan, pay an administrative fee to a financial institution or broker
for administrative services provided to the Institutional Service Shares class,
such a fee will not be an expense of the class but will be reimbursed to the
distributor by the investment adviser. Administrative fees are not paid in
conjunction with Institutional Shares.
The difference between class expenses and distribution expenses borne by shares
of each respective class will cause the amount of dividends payable to a
particular class of shares to exceed the amount of dividends payable to another
class of shares whose distribution expenses are greater. Thus, because
Institutional Shares are not subject to a 12b-1 fee, the Institutional Shares'
dividends will exceed the dividends paid by the Institutional Service Shares.
The stated advisory fee is the same for both classes of shares.
NEW JERSEY MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 33.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1993 1992 1991*
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------
Net investment income 0.02 0.03 0.04
- ---------------------------------------------------------------------------------- --------- --------- ---------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.03) (0.04)
- ---------------------------------------------------------------------------------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------- --------- --------- ---------
TOTAL RETURN** 2.12% 2.86% 3.82%(a)
- ----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------
Expenses 0.56% 0.55% 0.35%(b)
- ----------------------------------------------------------------------------------
Net investment income 2.08% 2.69% 4.11%(b)
- ----------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.45% 0.51% 0.69%(b)
- ----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $21,005 $26,844 $17,709
- ----------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 13, 1990 (date of initial
public investment) to October 31, 1991.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- --------------------------------------------------------------------- ----------- --------------
SHORT-TERM MUNICIPAL SECURITIES--100.8%
- ------------------------------------------------------------------------------------
NEW JERSEY--100.8%
---------------------------------------------------------------------
$ 864,600 Allendale, NJ, 2.93% BANs, 1/13/94 NR(3) $ 864,734
---------------------------------------------------------------------
2,000,000 Atlantic County, NJ, Improvement Authority Weekly VRDNs (Marine
Midland Bank N.A. LOC) VMIG2 2,000,000
---------------------------------------------------------------------
1,000,000 Camden County, NJ, 2.75% BANs, 2/23/94 MIG1 1,000,915
---------------------------------------------------------------------
1,500,000 Camden County, NJ, 3.25% BANs (Series 1993C), 2/23/94 MIG1 1,502,275
---------------------------------------------------------------------
3,500,000 Evesham Township, NJ, 2.70% BANs, 3/9/94 NR(3) 3,501,024
---------------------------------------------------------------------
828,043 Fairfield Township, NJ, 2.90% BANs, 12/17/93 NR(2) 828,193
---------------------------------------------------------------------
3,000,000 Hudson County, NJ, 3.325% TANs, 2/17/94 NR(4) 3,004,574
---------------------------------------------------------------------
4,900,000 Hudson County, NJ, Improvement Authority Solid Waste
Recovery Weekly VRDNs (Sumitomo Bank, Ltd. LOC)/
(Subject to AMT) A-1+ 4,900,000
---------------------------------------------------------------------
1,813,245 Lavallette Borough, NJ, 3.25% BANs, 5/6/94 NR 1,815,472
---------------------------------------------------------------------
2,000,000 Lindewold Borough, NJ, 2.95% TANs, 2/28/94 NR(4) 2,000,311
---------------------------------------------------------------------
900,000 Mercer County, NJ, Improvement Authority Weekly VRDNs (Credit Suisse
LOC) A-1+ 900,000
---------------------------------------------------------------------
593,750 Middle Township, NJ, 2.97% BANs, 6/15/94 NR(3) 594,524
---------------------------------------------------------------------
1,500,000 Middlesex County, NJ, Pollution Control Finance Authority Weekly
VRDNs (FMC Corporation)/(Wachovia Bank & Trust Co. N.A. LOC) P-1 1,500,000
---------------------------------------------------------------------
1,500,000 Montvale, NJ, 3.20% TANs, 1/19/94 NR(3) 1,501,104
---------------------------------------------------------------------
2,000,000 Morristown, NJ, 3.125% BANs, 10/13/94 NR(3) 2,006,901
---------------------------------------------------------------------
1,400,000 New Jersey EDA Weekly VRDNs (Edison Associates)/(Ford Motor Credit
BPA)/(Dai-Ichi Kangyo Bank, Ltd., LOC) P-1 1,400,000
---------------------------------------------------------------------
</TABLE>
NEW JERSEY MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- --------------------------------------------------------------------- ----------- --------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------------------
NEW JERSEY--CONTINUED
---------------------------------------------------------------------
$ 2,500,000 New Jersey EDA Weekly VRDNs (Franciscan Oaks)/(Bank of Scotland LOC) A-1+ $ 2,500,000
---------------------------------------------------------------------
5,763,000 New Jersey EDA Weekly VRDNs (Meridian Healthcare)/ (First National
Bank of Maryland LOC)/(Subject to AMT) P-1 5,763,000
---------------------------------------------------------------------
4,473,000 New Jersey EDA Weekly VRDNs (Mulins Machines)/
(Sovran Bank N.A. LOC) P-1 4,473,000
---------------------------------------------------------------------
1,695,000 New Jersey EDA Weekly VRDNs (Nash Group)/(Chemical Bank LOC)/(Subject
to AMT) A-1 1,695,000
---------------------------------------------------------------------
350,000 New Jersey EDA Weekly VRDNs (Series 1987G)/(W.Y.
Urban Renewal)/(National Westminster Bank PLC LOC)/
(Subject to AMT) VMIG1 350,000
---------------------------------------------------------------------
2,550,000 New Jersey EDA Weekly VRDNs (Series 1988F)/(Lamington Corners
Assoc.)/(First Fidelity Bank LOC)/
(Subject to AMT) VMIG1 2,550,000
---------------------------------------------------------------------
1,800,000 New Jersey EDA Weekly VRDNs (Series 1988B)/(Hyland
Industrial Associates)/(First Fidelity Bank LOC) VMIG1 1,800,000
---------------------------------------------------------------------
1,430,000 New Jersey EDA Weekly VRDNs (Series 1992Q)/(Physical Acoustics
Inc.)/(Banque Nationale de Paris LOC)/
(Subject to AMT) VMIG1 1,430,000
---------------------------------------------------------------------
1,425,000 New Jersey EDA Weekly VRDNs (Series 1992Z)/(West-Ward
Pharmaceuticals)/(Banque Nationale de Paris LOC)/ (Subject to AMT) VMIG1 1,425,000
---------------------------------------------------------------------
1,150,000 New Jersey EDA Weekly VRDNs (Series 1992D-1)/(Danlin Corp.)/(Banque
Nationale de Paris LOC)/(Subject to AMT) VMIG1 1,150,000
---------------------------------------------------------------------
2,645,000 New Jersey EDA Weekly VRDNs (Series 1992I-1)/(Geshem Realty)/(Banque
Nationale de Paris LOC)/(Subject to AMT) VMIG1 2,645,000
---------------------------------------------------------------------
</TABLE>
NEW JERSEY MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- --------------------------------------------------------------------- ----------- --------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------------------
NEW JERSEY--CONTINUED
---------------------------------------------------------------------
$ 900,000 New Jersey EDA Weekly VRDNs (Stewart Graphics Urban Renewal
Associates)/(First Fidelity Bank LOC)/
(Subject to AMT) VMIG1 $ 900,000
---------------------------------------------------------------------
4,050,000 New Jersey EDA Weekly VRDNs (YM-MWHA of Bergen County)/(Core States
Capital Corp. LOC) VMIG1 4,050,000
---------------------------------------------------------------------
1,250,000 New Jersey EDA, 2.875% BANs (Series 1993A)/(Middlesex Water Co.),
12/1/93 NR(3) 1,250,000
---------------------------------------------------------------------
1,400,000 New Jersey Health Care Facilities Financing Authority 2.90% SB
(Series D)/(Chilton Memorial Hospital), 7/1/94 NR(3) 1,400,000
---------------------------------------------------------------------
1,000,000 New Jersey Turnpike Authority Weekly VRDNs (Series 1991D)/(FGIC
Insured) A-1+ 1,000,000
---------------------------------------------------------------------
760,000 Palisades Park, NJ, 2.75% BANs, 5/24/94 NR(3) 760,515
---------------------------------------------------------------------
2,500,000 Pemberton Township, NJ, 3.15% TANs, 2/28/94 NR(4) 2,501,575
---------------------------------------------------------------------
2,000,000 Port Authority of New York and New Jersey Special Project Bonds
Weekly VRDNs (Series 3)/(KIAC Partners)/(Deutsche Bank AG
LOC)/(Subject to AMT) A-1+ 2,000,000
---------------------------------------------------------------------
9,000,000 Port Authority of New York and New Jersey Weekly VRDNs (Series
1991-4)/(Subject to AMT) P-1 9,000,000
---------------------------------------------------------------------
738,600 Runnemede, NJ, 2.84% BANs, 3/25/94 NR(4) 738,853
---------------------------------------------------------------------
1,045,000 Sparta Township, NJ, 3.14% BANs, 11/5/93 NR(3) 1,045,012
---------------------------------------------------------------------
1,025,000 Wall Township, NJ, 3.07% BANs, 1/13/94 NR(3) 1,025,338
---------------------------------------------------------------------
1,665,800 West Milford Township, NJ, 3.28% BANs, 1/28/94 NR(3) 1,666,501
---------------------------------------------------------------------
1,409,450 Winslow Township, NJ, 2.78% BANs, 6/17/94 NR(3) 1,410,562
---------------------------------------------------------------------
2,000,000 Woodbury, NJ, 2.99% BANs, 4/15/94 NR 2,002,140
---------------------------------------------------------------------
1,209,000 Woodbury, NJ, 3.75% BANs, 3/4/94 NR 1,212,957
---------------------------------------------------------------------
</TABLE>
NEW JERSEY MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- --------------------------------------------------------------------- ----------- --------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------------------
NEW JERSEY--CONTINUED
---------------------------------------------------------------------
$ 1,000,000 Woodcliffe Lake, NJ, 2.83% BANs, 6/10/94 NR(3) $ 1,000,764
--------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (AT AMORTIZED COST) $ 88,065,244\
--------------------------------------------------------------------- --------------
</TABLE>
* See Notes to Portfolio of Investments.
\ Also represents cost for federal tax purposes.
The following abbreviations are used in this portfolio:
AMT--Alternative Minimum Tax
BANs--Bond Anticipation Notes
BPA--Bond Purchase Agreement
EDA--Economic Development Authority
FGIC--Financial Guaranty Insurance Group
LOC--Letter of Credit
SB--Serial Bond
TANs--Tax Anticipation Notes
VRDNs--Variable Rate Demand Notes
Note: The categories of investments are shown as a percentage of net assets
($87,351,092) at
October 31, 1993.
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
S&P
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S
Moody's short-term ratings are designated Moody's Investment Grade (MIG OR VMIG
(see below)). The purpose of the MIG or VMIG ratings is to provide investors
with a simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
FITCH
Fitch's short-term ratings place greater emphasis on the existence of liquidity
necessary to meet the issuer's obligations in a timely manner.
F-1 Strongest degree of assurance for timely payment. Those issues determined to
provide exceptionally strong credit quality are given a plus (+)
designation.
F-2 Notes reflecting a degree of assurance for timely payment only slightly less
in degree than the highest category.
VARIABLE RATE DEMAND NOTES (VRDNS)
AND
TENDER OPTION BONDS (TOBS)
RATINGS
S&P
Standard & Poor's assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand
characteristics. Several examples are AAA/A-1+, AA/A-1+, and A/A-1. (The
definitions for the long-term and the short-term ratings are provided below.)
MOODY'S
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity.
In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the
first representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the second representing an evaluation of
the degree of risk associated with the demand feature. The VMIG rating can be
assigned a 1 or 2 designation using the same definitions described above for the
MIG rating.
FITCH
Fitch usually assigns two ratings to long-term debt issues that include
provisions for a variable rate demand feature. The long-term rating addresses
the ability of the obligor to pay debt service and the short-term rating
addresses the timely payment of the demand feature. Examples of rating
designation are as follows: AAA/F-1+, AA/F-1+, and A/F-1. (The definitions for
the long-term and short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
S&P
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."
MOODY'S
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
The following is an explanation of the Fitch ratings. These ratings are not
referenced in the Portfolio of Investments.
FITCH
F-1 Issues assigned this rating reflect a strong degree of assurance for timely
payment. Those issuers determined to possess the strongest degree of
assurance for timely payment are denoted with a plus (+) sign designation.
F-2 Issuers carrying this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the "F-1+" and
"F-1" categories.
LONG-TERM DEBT RATINGS
(INVESTMENT GRADE)
S&P
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
principal and interest than debt rated in higher ratings categories.
MOODY'S
AAA Bonds that are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large margin and
principal is secure. While the various protective elements are likely to
change, such changes which can be foreseen are most unlikely to impair
the fundamentally strong position of such issues.
AA Bonds that are rated AA are judged to be of high quality by all
standards. Together with the AAA group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in AAA securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in AAA securities.
A Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are
considered adequate, but elements may be present that suggest a
susceptibility to impairment some time in the future.
BAA Bonds which are rated BAA are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
FITCH
AAA Bonds that are rated AAA are of the highest credit quality. The obligor
has an exceptionally strong ability to pay debt service.
AA Bonds that are rated AA are of very high quality. The obligor has a very
strong ability to pay debt service. Debt rated in this category may also
have a (+) or (-) sign with a rating to indicate the relative position
within the rating category.
A Bonds are considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
NR indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P, Moody's, or Fitch with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated in one of the two highest short-term ratings
categories by a nationally recognized statistical ratings organization.
NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by
Fitch.
NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch.
NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "A" by Standard & Poor's, Moody's, or Fitch.
NR(4) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by
Fitch.
NEW JERSEY MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $ 88,065,244
- --------------------------------------------------------------------------------------------------
Cash 207,279
- --------------------------------------------------------------------------------------------------
Interest receivable 616,717
- --------------------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 21,922
- -------------------------------------------------------------------------------------------------- --------------
Total assets 88,911,162
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------------------------
Payable for investments purchased $ 1,402,143
- -----------------------------------------------------------------------------------
Dividends payable 128,480
- -----------------------------------------------------------------------------------
Payable for Fund shares redeemed 1,778
- -----------------------------------------------------------------------------------
Accrued expenses and other liabilities 27,669
- ----------------------------------------------------------------------------------- -------------
Total liabilities 1,560,070
- -------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 87,351,092 shares of beneficial interest outstanding $ 87,351,092
- -------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- --------------------------------------------------------------------------------------------------
Institutional Shares ($66,345,642 / 66,345,642 shares of beneficial interest outstanding)
$1.00
- -------------------------------------------------------------------------------------------------- --------------
Institutional Service Shares ($21,005,450 / 21,005,450 shares of beneficial interest outstanding)
$1.00
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 2,670,057
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 404,029
- --------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 292,432
- --------------------------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 111,903
- --------------------------------------------------------------------------------------
Trustees' fees 2,746
- --------------------------------------------------------------------------------------
Auditing fees 17,815
- --------------------------------------------------------------------------------------
Legal fees 12,207
- --------------------------------------------------------------------------------------
Printing and postage 20,163
- --------------------------------------------------------------------------------------
Fund share registration costs 39,181
- --------------------------------------------------------------------------------------
Distribution services fees (Note 5) 56,220
- --------------------------------------------------------------------------------------
Insurance premiums 6,607
- --------------------------------------------------------------------------------------
Taxes 2,213
- --------------------------------------------------------------------------------------
Miscellaneous 7,106
- -------------------------------------------------------------------------------------- -----------
Total expenses 972,622
- --------------------------------------------------------------------------------------
Deduct--
- -------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 404,029
- -------------------------------------------------------------------------
Reimbursement of other operating expenses (Note 5) 51,345
- -------------------------------------------------------------------------
Waiver of distribution services fees (Note 5) 4,206 459,580
- ------------------------------------------------------------------------- ----------- -----------
Net expenses 513,042
- --------------------------------------------------------------------------------------------------- -------------
Net investment income $ 2,157,015
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1993 1992
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------
Net investment income $ 2,157,015 $ 2,422,424
- ----------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -----------------------------------------------------------------------------
Institutional Shares (1,458,805) (1,595,419)
- -----------------------------------------------------------------------------
Institutional Service Shares (602,534) (706,680)
- -----------------------------------------------------------------------------
Cash Series Shares (95,676) (120,325)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from distributions to shareholders (2,157,015) (2,422,424)
- ----------------------------------------------------------------------------- ---------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------
Proceeds from sale of shares 344,229,882 257,860,604
- -----------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 213,366 200,781
- -----------------------------------------------------------------------------
Cost of shares redeemed (346,170,580) (232,804,903)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from Fund share transactions (1,727,332) 25,256,482
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets (1,727,332) 25,256,482
- -----------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------
Beginning of period 89,078,424 63,821,942
- ----------------------------------------------------------------------------- ---------------- ----------------
End of period $ 87,351,092 $ 89,078,424
- ----------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company
with several portfolios. The financial statements included herein are only those
of New Jersey Municipal Cash Trust (the "Fund"). The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
Effective October 6, 1993, the Fund provided two classes of shares
("Institutional Service Shares" and "Institutional Shares"). Institutional
Service Shares are identical in all respects to Institutional Shares except that
Institutional Service Shares are sold pursuant to a distribution plan ("Plan")
adopted in accordance with Investment Company Act Rule 12b-1. Prior to October
6, 1993, the Fund offered a third class of shares ("Cash Series Shares"). Cash
Series Shares were identical in all respects to Institutional Shares except that
Cash Series Shares, like Institutional Service Shares, were sold pursuant to a
distribution plan ("Plan") adopted in accordance with Investment Company Act
Rule 12b-1.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined
that the best method currently available for valuing portfolio securities
is amortized cost. The Fund's use of the amortized cost method to value its
portfolio securities is conditioned on its compliance with Rule 2a-7 under
the Investment Company Act of 1940.
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state, than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such
factors, at October 31, 1993, 50.5% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The
aggregate percentages by financial institution ranged from 0.4% to 7.6% of
total investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest earned net of premium, and original issue discount as
required by the Internal Revenue Code (the "Code").
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code applicable to investment companies and to distribute
to shareholders each year all of its net income. Accordingly, no provision
for federal tax is necessary. Dividends paid by the Fund
representing net interest received on tax-exempt municipal securities are
not includable by shareholders as gross income for federal income tax
purposes because the Fund intends to meet certain requirements of the Code
applicable to regulated investment companies which will enable the Fund to
pay exempt-interest dividends. The portion of such interest, if any, earned
on private activity bonds issued after August 7, 1986 may be considered a
tax preference item to shareholders for the purpose of computing the
alternative minimum tax.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Fund
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objective and policies
and not for the purpose of investment leverage. The Fund will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Fund will maintain security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method through December, 1995.
F. EXPENSES--Expenses of the Fund (other than distribution services fees) and
waivers and reimbursements, if any, are allocated to each class of shares
based on its relative daily average net assets for the period. Expenses
incurred by the Trust which do not specifically relate to an individual
fund are allocated among all funds based on a fund's relative net asset
value size or as deemed appropriate by the administrator.
G. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) DIVIDENDS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash, or in additional
shares at the net asset value on the payable date.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1993, capital paid-in aggregated $87,351,092.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SHARES 1993 1992
<S> <C> <C>
Shares outstanding, beginning of period 57,657,084 39,423,429
- --------------------------------------------------------------------------------
Shares sold 184,549,947 136,820,582
- --------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 2,221 3,244
- --------------------------------------------------------------------------------
Shares redeemed (175,863,610) (118,590,171)
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period 66,345,642 57,657,084
- -------------------------------------------------------------------------------- --------------- ---------------
<CAPTION>
INSTITUTIONAL SERVICE SHARES
<S> <C> <C>
Shares outstanding, beginning of period 26,843,665 17,709,241
- --------------------------------------------------------------------------------
Shares sold 141,401,508 114,462,133
- --------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 134,265 105,233
- --------------------------------------------------------------------------------
Shares redeemed (147,373,988) (105,432,942)
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period 21,005,450 26,843,665
- -------------------------------------------------------------------------------- --------------- ---------------
<CAPTION>
CASH SERIES SHARES
<S> <C> <C>
Shares outstanding, beginning of period 4,577,675 6,689,272
- --------------------------------------------------------------------------------
Shares sold 18,278,427 6,577,889
- --------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 76,880 92,304
- --------------------------------------------------------------------------------
Shares redeemed (22,932,982) (8,781,790)
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period -- 4,577,675
- -------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Management, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to .40 of 1% of the Fund's
average daily net assets. Adviser has voluntarily agreed to waive all or a
portion of its fee. The Adviser can terminate this voluntary waiver of expenses
at any time at its sole discretion. For the fiscal year ended October 31, 1993,
the Adviser earned $404,029, all of which was voluntarily waived. In addition,
Adviser voluntarily reimbursed $51,345 of the Fund's normal operating expenses.
Organizational expenses ($61,531) and start-up administrative services expenses
($16,639) were borne initially by the Adviser. The Fund has agreed to pay the
Adviser, at an annual rate .005 of 1% of average daily net assets, until the
expenses borne by the Adviser are reimbursed, or the expiration of five years
after December 10, 1990, the date the Trust's portfolio became effective,
whichever occurs
earlier. During the fiscal year ended October 31, 1993, the Fund paid Adviser
$5,065 and $8,128, respectively, pursuant to this agreement.
During the fiscal year ended October 31, 1993, the Fund engaged in purchase and
sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7
of the Investment Company Act of 1940 amounting to $139,875,000 and
$151,274,752, respectively. These purchases and sales were conducted on an
arms-length basis insofar as they were transacted for cash consideration only,
at independent current market prices and without brokerage commission, fee or
other remuneration.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Trust will compensate Federated
Securities Corp., ("FSC"), the principal distributor, from the assets of the
Fund, for fees it paid which relate to the distribution and administration of
the Fund's Institutional Service Shares and Cash Series Shares. The Plan
provides that the Fund may incur distribution expenses up to .10 of 1% of the
average daily net assets of the Institutional Service Shares and .50 of 1% of
the average daily net assets of the Cash Series Shares, annually, to pay
commissions, maintenance fees and to compensate the distributor. During the
fiscal year ended October 31, 1993, FSC earned $29,018 in distribution services
fees for Institutional Service Shares and $27,202 for Cash Series Shares of
which $4,206 was voluntarily waived.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Certain Officers and Trustees of the
Trust are Officers and Directors of the above corporations.
(6) CURRENT CREDIT RATINGS
Current credit ratings and related notes are unaudited.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST (New Jersey Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of New
Jersey Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
investments, as of October 31, 1993, the related statement of operations for the
year then ended, and the statement of changes in net assets, and financial
highlights (see pages 2 and 17) for the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1993, by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of New
Jersey Municipal Cash Trust, an investment portfolio of Federated Municipal
Trust, as of October 31, 1993, the results of its operations for the year then
ended, and the changes in its net assets and financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR
ANDERSEN & CO.
Pittsburgh, Pennsylvania
December 13, 1993
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
New Jersey Municipal Cash Trust
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh,
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
NEW JERSEY MUNICIPAL
CASH TRUST
INSTITUTIONAL SHARES
PROSPECTUS
A Non-Diversified Portfolio of
Federated Municipal Trust, an Open-End
Management Investment Company
December 31, 1993
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
DISTRIBUTOR
A SUBSIDIARY OF FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
0100802A-IS (12/93)
NEW JERSEY MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of New Jersey Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a non-diversified portfolio of
securities which is one of a series of investment portfolios in Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The investment objective of the Fund is to provide current income
exempt from federal regular income tax and the New Jersey state income tax
imposed upon non-corporate taxpayers consistent with stability of principal. The
Fund invests primarily in short-term New Jersey municipal securities, including
securities of states, territories, and possessions of the United States, which
are not issued by or on behalf of New Jersey or its political subdivisions and
financing authorities, which are exempt from the federal regular and New Jersey
state income tax imposed upon non-corporate taxpayers. Institutional Service
Shares are sold at net asset value, without a sales load.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THE INSTITUTIONAL SERVICE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
ISSUED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in Institutional Service Shares. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information for
Institutional Service Shares and Institutional Shares dated December 31, 1993,
with the Securities and Exchange Commission. The information contained in the
Combined Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 31, 1993
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Variable Rate Demand Notes 4
Participation Interests 4
Municipal Leases 4
Ratings 4
Credit Enhancement 5
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed
Delivery Transactions 5
Temporary Investments 5
New Jersey Municipal Securities 6
Standby Commitments 6
New Jersey Investment Risks 6
Non-Diversification 7
Investment Limitations 7
Regulatory Compliance 8
FEDERATED MUNICIPAL TRUST INFORMATION 8
- ------------------------------------------------------
Management of Federated Municipal Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Institutional Service Shares 9
Distribution Plan 9
Administrative Arrangements 10
Administration of the Fund 10
Administrative Services 10
Custodian 10
Transfer Agent and
Dividend Disbursing Agent 10
Legal Counsel 10
Independent Public Accountants 10
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SERVICE SHARES 11
- ------------------------------------------------------
Share Purchases 11
By Wire 11
By Mail 11
Minimum Investment Required 11
What Shares Cost 11
Subaccounting Services 12
Certificates and Confirmations 12
Dividends 12
Capital Gains 12
REDEEMING INSTITUTIONAL SERVICE SHARES 12
- ------------------------------------------------------
Telephone Redemption 12
Written Requests 13
Signatures 13
Receiving Payment 13
Checkwriting 13
Redemption Before Purchase
Instruments Clear 14
Accounts with Low Balances 14
SHAREHOLDER INFORMATION 14
- ------------------------------------------------------
Voting Rights 14
Massachusetts Partnership Law 14
TAX INFORMATION 15
- ------------------------------------------------------
Federal Income Tax 15
New Jersey Tax Considerations 16
Other State and Local Taxes 16
PERFORMANCE INFORMATION 16
- ------------------------------------------------------
OTHER CLASSES OF SHARES 17
- ------------------------------------------------------
Financial Highlights--
Institutional Shares 18
FINANCIAL STATEMENTS 19
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 34
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................................................................. None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................................................. None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee........................................................................................... None
ANNUAL INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)...................................................................... 0.04%
12b-1 Fee.............................................................................................. 0.10%
Other Expenses......................................................................................... 0.51%
Total Institutional Service Shares Operating Expenses (2).................................... 0.65%
</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 Total Institutional Service Shares Operating Expenses in the table
above are based on expenses expected during the fiscal year ending October
31, 1994. The Total Institutional Service Shares Operating Expenses were
0.56% for the fiscal year ended October 31, 1993, and were 1.01% absent the
voluntary waiver of the management fee and the reimbursement of certain
other operating expenses.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF
THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE
DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL
SERVICE SHARES" AND "FEDERATED MUNICIPAL TRUST INFORMATION." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<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. As noted in the table above, the Fund charges no redemption
fee for Institutional Service Shares.................................. $7 $21 $36 $81
</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.
The information set forth in the foregoing table and example relates only
to Institutional Service Shares of the Fund. The Fund also offers another class
of shares called Institutional Shares. Institutional Service Shares and
Institutional Shares are subject to certain of the same expenses; however,
Institutional Shares are not subject to a 12b-1 fee. See "Other Classes of
Shares."
NEW JERSEY MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 34.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1993 1992 1991*
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------
Net investment income 0.02 0.03 0.04
- ---------------------------------------------------------------------------------- --------- --------- ---------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.03) (0.04)
- ---------------------------------------------------------------------------------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------- --------- --------- ---------
TOTAL RETURN** 2.12% 2.86% 3.82%(a)
- ----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------
Expenses 0.56% 0.55% 0.35%(b)
- ----------------------------------------------------------------------------------
Net investment income 2.08% 2.69% 4.11%(b)
- ----------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.45% 0.51% 0.69%(b)
- ----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $21,005 $26,844 $17,709
- ----------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 13, 1990 (date of initial
public investment) to October 31, 1991.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Trustees ("Trustees") have established two classes of
shares, known as Institutional Service Shares and Institutional Shares. This
prospectus relates only to the Institutional Service Shares of the Fund.
Institutional Service Shares ("Shares") of the Fund are designed for the
investment of moneys held by financial institutions in an agency capacity. A
minimum initial investment of $25,000 over a 90-day period is required. The Fund
may not be a suitable investment for non-New Jersey taxpayers or retirement
plans since it invests primarily in New Jersey municipal securities.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal regular income tax and the New Jersey state income tax imposed upon
non-corporate taxpayers consistent with stability of principal. The investment
objective cannot be changed without approval of shareholders. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than New Jersey.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of New Jersey municipal securities with remaining maturities of 13 months or
less at the time of purchase by the Fund. As a matter of investment policy,
which cannot be changed without approval of shareholders, the Fund invests its
assets so that at least 80% of its annual interest income is exempt from federal
regular income tax and New Jersey state income tax imposed upon non-corporate
taxpayers. The average maturity of the securities in the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less. Unless indicated
otherwise, the investment policies may be changed by the Trustees without the
approval of shareholders. Shareholders will be notified before any material
changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued
by or on behalf of New Jersey and its political subdivisions and financing
authorities, and obligations of other states, territories and possessions of the
United States, including the District of Columbia, and any political subdivision
or financing authority of any of these, the income from which is, in the opinion
of qualified
legal counsel, exempt from both federal regular income tax and New Jersey state
income tax imposed upon non-corporate taxpayers. Examples of New Jersey
municipal securities include, but are not limited to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
municipal securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days' prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS. The Fund may purchase interests in municipal
securities from financial institutions such as commercial and investment
banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying municipal securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and may be considered to be illiquid. They may take the form
of a lease, an installment purchase contract, a conditional sales contract,
or a participation certificate on any of the above.
RATINGS. The New Jersey municipal securities in which the Fund invests must
either be rated in one of the two highest short-term rating categories by one or
more nationally recognized statistical rating organizations ("NRSROs") or be of
comparable quality to securities having such ratings. An NRSRO's two highest
rating categories are determined without regard for sub-categories and
gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc.
("Moody's"), or FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service, Inc.
("Fitch") are all considered rated in one of the two highest short-term rating
categories. The Fund will follow applicable regulations in determining whether a
security rated by more than one
NRSRO can be treated as being in one of the two highest short-term rating
categories; currently, such securities must be rated by two NRSROs in one of
their two highest categories. See "Regulatory Compliance."
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Trustees, certain restricted securities are considered
liquid. To the extent restricted securities are deemed to be illiquid, the Fund
will limit their purchase, together with other securities considered to be
illiquid, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase New Jersey
municipal securities on a when-issued or delayed delivery basis. In when-issued
and delayed delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term non-New Jersey municipal
tax-exempt obligations or other taxable temporary investments. All temporary
investments will satisfy the same credit quality standards as the Fund's
acceptable investments. See "Ratings" above. Temporary investments include:
notes issued by or on behalf of municipal or corporate issuers; marketable
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; and repurchase agreements (arrangements in which banks,
broker/dealers, and other recognized financial institutions sell the Fund a
temporary investment and agree to repurchase it at a mutually agreed upon time
and price).
Although the Fund is permitted to make taxable temporary investments, there is
no current intention of generating income subject to federal regular income tax
or New Jersey state income tax imposed upon non-corporate taxpayers.
NEW JERSEY MUNICIPAL SECURITIES
New Jersey municipal securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
New Jersey municipal securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS
Some securities dealers are willing to sell municipal securities to the Fund
accompanied by their commitments to repurchase the municipal securities prior to
maturity, at the Fund's option, for the amortized cost of the municipal
securities at the time of repurchase. These arrangements are not used to protect
against changes in the market value of municipal securities. They permit the
Fund, however, to remain fully invested and still provide liquidity to satisfy
redemptions. The cost of municipal securities accompanied by these "standby"
commitments could be greater than the cost of municipal securities without such
commitments. Standby commitments are not marketable or otherwise assignable and
have value only to the Fund. The default or bankruptcy of a securities dealer
giving such a commitment would not affect the quality of the municipal
securities purchased. However, without a standby commitment, these securities
could be more difficult to sell. The Fund enters into standby commitments only
with those dealers whose credit the investment adviser believes to be of high
quality.
NEW JERSEY INVESTMENT RISKS
Yields on New Jersey municipal securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the State of New Jersey or its
municipalities could impact the Fund's portfolio. The ability of the Fund to
achieve its investment objective also depends on the continuing ability of the
issuers of New Jersey municipal securities and demand features for such
securities, or the credit enhancers of either, to meet their obligations for the
payment of interest and principal when due.
Investing in New Jersey municipal securities which meet the Fund's quality
standards may not be possible if the State of New Jersey or its municipalities
do not maintain their high quality, short-term credit ratings. In addition,
certain New Jersey constitutional amendments, legislative measures, executive
orders, administrative regulations, and voter initiatives could result in
adverse consequences affecting New Jersey municipal securities. An expanded
discussion of the current economic risks associated with the purchase of New
Jersey municipal securities is contained in the Combined Statement of Additional
Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified investment portfolio because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, with
regard to at least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following investment limitation, however, can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective.
The Fund will not invest more than 5% of its total assets in industrial
development bonds or other municipal securities when the payment of principal
and interest is the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations, including the
operation of any predecessor.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Combined Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which regulates
money market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST INFORMATION
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MANAGEMENT OF FEDERATED MUNICIPAL TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of
Trustees is responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for the voluntary waiver of the advisory
fee by the adviser, the adviser may voluntarily waive some or all of the
advisory fee. This does not include reimbursement to the Fund of any
expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The adviser can terminate this voluntary waiver
of expenses at any time at its sole discretion. The adviser has also
undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the Trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund
will pay to the distributor an amount computed at an annual rate of 0.10% of the
average daily net asset value of the Shares to finance any activity which is
principally intended to result in the sale of the Shares subject to the Plan.
The distributor may from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the Shares exceed such lower expense limitation as
the distributor may, by notice to the Trust, voluntarily declare to be
effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("brokers")
to provide sales and/or administrative services as agents for their clients or
customers who beneficially own Shares. Administrative services may include, but
are not limited to, the following functions: providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer and other
personnel as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine client
inquiries regarding the Shares; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Fund reasonably requests for Shares.
Financial institutions will receive fees from the distributor based upon Shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no payments
to the distributor in connection with the sale of Shares except as described
above. Therefore, the Fund does not pay for unreimbursed expenses of the
distributor, including amounts expended by the distributor in excess of amounts
received by it from the Fund, interest, carrying or other financing charges in
connection with excess amounts expended, or the distributor's overhead expenses.
However, the distributor may be able to recover such amounts or may earn a
profit from future payments made by the Fund under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Board of Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATIVE ARRANGEMENTS. In addition to the fees paid by the distributor to
financial institutions under the Plan as described above, the distributor may
also pay financial institutions a fee with respect to the average net asset
value of Shares held by their customers for providing administrative services.
The rate of such fee will be determined by the average net asset value of the
shares held by their customers in the Cash Series class of the Trust and in Cash
Trust Series, another registered investment company distributed by Federated
Securities Corp. This fee is in addition to amounts paid under the Plan and, if
paid, will be reimbursed by the adviser and not the Fund.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary
of Federated Investors, provides the Fund with the administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services, Inc., provides these at approximate cost.
CUSTODIAN. _State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. _Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
NET ASSET VALUE
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The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per Share is determined by adding the interest of the Shares in the value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding.
The Fund, of course, cannot guarantee that its net asset value will always
remain at $1.00 per Share.
INVESTING IN INSTITUTIONAL SERVICE SHARES
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SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open for business. Shares may be purchased either by
wire or by mail. The Fund reserves the right to reject any purchase request.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) that same day. Federal funds should be wired as follows: State Street Bank
and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
New Jersey Municipal Cash Trust--Institutional Service Shares; Fund Number (this
number can be found on the account statement or by contacting the Fund); Group
Number or Order Number; Nominee or Institution Name; and ABA Number 011000028.
Shares cannot be purchased by wire on days on which the New York Stock Exchange
is closed and on federal holidays restricting wire transfers.
BY MAIL. To purchase Shares by mail, send a check made payable to New Jersey
Municipal Cash Trust-Institutional Service Shares to the Trust's transfer agent,
Federated Services Company, c/o State Street Bank and Trust Company, P.O. Box
8602, Boston, Massachusetts 02266-8602. Orders by mail are considered received
when payment by check is converted by State Street Bank into federal funds. This
is normally the next business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund. Individual accounts
established through a bank or broker may be subject to a different minimum
investment requirement.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a bank or broker may be charged an additional service fee by that
bank or broker.
The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Financial
institutions holding Shares in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the financial institution with regard to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the day after the check is converted, upon
instruction of the transfer agent, into federal funds. Dividends are
automatically reinvested on payment dates in additional Shares unless cash
payments are requested on an application or by contacting the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses,
if any, could result in a decrease in dividends. If, for some extraordinary
reason, the Fund realizes net long-term or short-term capital gains, it will
distribute them at least once every 12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
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The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund. Redemption
requests received before 12:00 noon (Eastern time) are not entitled to that
day's dividend. A daily dividend will be paid on Shares redeemed if the
redemption request is received after 12:00 noon (Eastern time). However, the
proceeds are not wired until the following business day. If, at any time, the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders will be promptly notified.
An authorization form permitting the Fund to accept redemption requests by
telephone must first be completed. Authorization forms and information on this
service are available from Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, shareholders may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as Written Requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name and class of shares,
his account number, and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
CHECKWRITING. _At the shareholder's request, State Street Bank will establish a
checking account for redeeming Shares. For further information, contact
Federated Securities Corp.
A fee may be charged for this service. With a Fund checking account, Shares may
be redeemed simply by writing a check. The redemption will be made at the net
asset value on the date that State Street Bank presents the check to the Fund. A
check may not be written to close an account. If a shareholder wishes to redeem
Shares and have the proceeds available, a check may be written and negotiated
through the shareholder's bank. Checks should never be sent to State Street Bank
to redeem Shares. Cancelled checks are returned to the shareholder each month.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, the proceeds from the redemption of those
Shares are not available, and the Shares may not be exchanged, until the Fund or
its agents are reasonably certain that the purchase check has cleared, which
could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
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VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote. As of November 29, 1993, Fiduciary Trust Company
International, New York, New York, owned 36.87% of the voting securities of the
Institutional Service Shares of the Fund, and, therefore, may, for certain
purposes, be deemed to control the Institutional Service Shares of the Fund and
be able to affect the outcome of certain matters presented for a vote of
shareholders.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of all series of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for such
acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument that the
Trust or its Trustees enter into or sign.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
TAX INFORMATION
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FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal
bonds, including private activity bonds. Thus, should it purchase any such
bonds, a portion of the Fund's dividends may be treated as a tax preference
item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, 75% of the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
NEW JERSEY TAX CONSIDERATIONS
Under existing New Jersey law, distributions made by the Fund will not be
subject to New Jersey income tax to the extent that such distributions qualify
as exempt interest dividends under the Internal Revenue Code, and are
attributable to interest or gain derived by the Fund from (i) obligations issued
by or on behalf of the State of New Jersey or any county, municipality, school
or other district, agency, authority, commission, instrumentality, public
corporation, body corporate and politic or political subdivision of New Jersey;
or (ii) obligations (such as obligations of the United States) that are
statutorily free from New Jersey taxation under federal or New Jersey state
laws. Conversely, to the extent that distributions by the Fund are attributable
to other types of obligations, such distributions will not be exempt from New
Jersey income tax.
Distributions received by a corporate shareholder from the Fund will not be
exempt from New Jersey corporation business tax or New Jersey corporation income
tax.
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from regular state income taxes in
states other than New Jersey or from personal property taxes. State laws differ
on this issue and shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield, effective yield, and
tax-equivalent yield for Institutional Service Shares.
The yield of Institutional Service Shares represents the annualized rate of
income earned on an investment in Institutional Service Shares over a seven-day
period. It is the annualized dividends earned during the period on the
investment, shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but, when annualized, the income earned by an
investment in
Institutional Service Shares is assumed to be reinvested daily. The effective
yield will be slightly higher than the yield because of the compounding effect
of this assumed reinvestment. The tax-equivalent yield of Institutional Service
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that the Institutional Service Shares would have had to earn to
equal their actual yield, assuming a specific tax rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Institutional Service Shares after reinvesting all income
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
Yield, effective yield, and tax-equivalent yield will be calculated separately
for Institutional Service Shares and Institutional Shares. Because Institutional
Service Shares are subject to 12b-1 fees, the yield, the effective yield, and
the tax-equivalent yield for Institutional Shares will exceed the yield, the
effective yield, and the tax-equivalent yield for Institutional Service Shares
for the same period.
From time to time, the Fund may advertise the performance of Institutional
Service Shares using certain reporting services and/or compare the performance
of Institutional Service Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Shares are sold to accounts for which financial institutions act
in a fiduciary capacity. Institutional Shares are sold at net asset value.
Investments in Institutional Shares are also subject to a minimum initial
investment of $25,000. Institutional Shares are distributed without a 12b-1
Plan.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares of the Fund
than from another class of shares depending upon which class of shares of the
Fund is sold. While the distributor may, in addition to fees paid pursuant to
the 12b-1 Plan, pay an administrative fee to a financial institution or broker
for administrative services provided to the Institutional Service Shares class,
such a fee will not be an expense of the class but will be reimbursed to the
distributor by the investment adviser. Administrative fees are not paid in
conjunction with Institutional Shares.
The difference between class expenses and distribution expenses borne by shares
of each respective class will cause the amount of dividends payable to a
particular class of shares to exceed the amount of dividends payable to another
class of shares whose distribution expenses are greater. Thus, because
Institutional Shares are not subject to a 12b-1 fee, the Institutional Shares'
dividends will exceed the dividends paid by the Institutional Service Shares.
The stated advisory fee is the same for all classes of shares.
NEW JERSEY MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 34.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1993 1992 1991*
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------
Net investment income 0.02 0.03 0.04
- ---------------------------------------------------------------------------------- --------- --------- ---------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.03) (0.04)
- ---------------------------------------------------------------------------------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------- --------- --------- ---------
TOTAL RETURN** 2.22% 2.96% 3.87%(a)
- ----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------
Expenses 0.46% 0.45% 0.27%(b)
- ----------------------------------------------------------------------------------
Net investment income 2.19% 2.86% 4.19%(b)
- ----------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.45% 0.51% 0.67%(b)
- ----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $66,346 $57,657 $39,423
- ----------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 13, 1990 (date of initial
public investment) to October 31, 1991.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- --------------------------------------------------------------------- ----------- --------------
SHORT-TERM MUNICIPAL SECURITIES--100.8%
- ------------------------------------------------------------------------------------
NEW JERSEY--100.8%
---------------------------------------------------------------------
$ 864,600 Allendale, NJ, 2.93% BANs, 1/13/94 NR(3) $ 864,734
---------------------------------------------------------------------
2,000,000 Atlantic County, NJ, Improvement Authority Weekly VRDNs (Marine
Midland Bank N.A. LOC) VMIG2 2,000,000
---------------------------------------------------------------------
1,000,000 Camden County, NJ, 2.75% BANs, 2/23/94 MIG1 1,000,915
---------------------------------------------------------------------
1,500,000 Camden County, NJ, 3.25% BANs (Series 1993C), 2/23/94 MIG1 1,502,275
---------------------------------------------------------------------
3,500,000 Evesham Township, NJ, 2.70% BANs, 3/9/94 NR(3) 3,501,024
---------------------------------------------------------------------
828,043 Fairfield Township, NJ, 2.90% BANs, 12/17/93 NR(2) 828,193
---------------------------------------------------------------------
3,000,000 Hudson County, NJ, 3.325% TANs, 2/17/94 NR(4) 3,004,574
---------------------------------------------------------------------
4,900,000 Hudson County, NJ, Improvement Authority Solid Waste
Recovery Weekly VRDNs (Sumitomo Bank, Ltd. LOC)/
(Subject to AMT) A-1+ 4,900,000
---------------------------------------------------------------------
1,813,245 Lavallette Borough, NJ, 3.25% BANs, 5/6/94 NR 1,815,472
---------------------------------------------------------------------
2,000,000 Lindewold Borough, NJ, 2.95% TANs, 2/28/94 NR(4) 2,000,311
---------------------------------------------------------------------
900,000 Mercer County, NJ, Improvement Authority Weekly VRDNs (Credit Suisse
LOC) A-1+ 900,000
---------------------------------------------------------------------
593,750 Middle Township, NJ, 2.97% BANs, 6/15/94 NR(3) 594,524
---------------------------------------------------------------------
1,500,000 Middlesex County, NJ, Pollution Control Finance Authority Weekly
VRDNs (FMC Corporation)/(Wachovia Bank & Trust Co. N.A. LOC) P-1 1,500,000
---------------------------------------------------------------------
1,500,000 Montvale, NJ, 3.20% TANs, 1/19/94 NR(3) 1,501,104
---------------------------------------------------------------------
2,000,000 Morristown, NJ, 3.125% BANs, 10/13/94 NR(3) 2,006,901
---------------------------------------------------------------------
1,400,000 New Jersey EDA Weekly VRDNs (Edison Associates)/(Ford Motor Credit
BPA)/(Dai-Ichi Kangyo Bank, Ltd., LOC) P-1 1,400,000
---------------------------------------------------------------------
</TABLE>
NEW JERSEY MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- --------------------------------------------------------------------- ----------- --------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------------------
NEW JERSEY--CONTINUED
---------------------------------------------------------------------
$ 2,500,000 New Jersey EDA Weekly VRDNs (Franciscan Oaks)/(Bank of Scotland LOC) A-1+ $ 2,500,000
---------------------------------------------------------------------
5,763,000 New Jersey EDA Weekly VRDNs (Meridian Healthcare)/ (First National
Bank of Maryland LOC)/(Subject to AMT) P-1 5,763,000
---------------------------------------------------------------------
4,473,000 New Jersey EDA Weekly VRDNs (Mulins Machines)/
(Sovran Bank N.A. LOC) P-1 4,473,000
---------------------------------------------------------------------
1,695,000 New Jersey EDA Weekly VRDNs (Nash Group)/(Chemical Bank LOC)/(Subject
to AMT) A-1 1,695,000
---------------------------------------------------------------------
350,000 New Jersey EDA Weekly VRDNs (Series 1987G)/(W.Y.
Urban Renewal)/(National Westminster Bank PLC LOC)/
(Subject to AMT) VMIG1 350,000
---------------------------------------------------------------------
2,550,000 New Jersey EDA Weekly VRDNs (Series 1988F)/(Lamington Corners
Assoc.)/(First Fidelity Bank LOC)/
(Subject to AMT) VMIG1 2,550,000
---------------------------------------------------------------------
1,800,000 New Jersey EDA Weekly VRDNs (Series 1988B)/(Hyland
Industrial Associates)/(First Fidelity Bank LOC) VMIG1 1,800,000
---------------------------------------------------------------------
1,430,000 New Jersey EDA Weekly VRDNs (Series 1992Q)/(Physical Acoustics
Inc.)/(Banque Nationale de Paris LOC)/
(Subject to AMT) VMIG1 1,430,000
---------------------------------------------------------------------
1,425,000 New Jersey EDA Weekly VRDNs (Series 1992Z)/(West-Ward
Pharmaceuticals)/(Banque Nationale de Paris LOC)/ (Subject to AMT) VMIG1 1,425,000
---------------------------------------------------------------------
1,150,000 New Jersey EDA Weekly VRDNs (Series 1992D-1)/(Danlin Corp.)/(Banque
Nationale de Paris LOC)/(Subject to AMT) VMIG1 1,150,000
---------------------------------------------------------------------
2,645,000 New Jersey EDA Weekly VRDNs (Series 1992I-1)/(Geshem Realty)/(Banque
Nationale de Paris LOC)/(Subject to AMT) VMIG1 2,645,000
---------------------------------------------------------------------
</TABLE>
NEW JERSEY MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- --------------------------------------------------------------------- ----------- --------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------------------
NEW JERSEY--CONTINUED
---------------------------------------------------------------------
$ 900,000 New Jersey EDA Weekly VRDNs (Stewart Graphics Urban Renewal
Associates)/(First Fidelity Bank LOC)/
(Subject to AMT) VMIG1 $ 900,000
---------------------------------------------------------------------
4,050,000 New Jersey EDA Weekly VRDNs (YM-MWHA of Bergen County)/(Core States
Capital Corp. LOC) VMIG1 4,050,000
---------------------------------------------------------------------
1,250,000 New Jersey EDA, 2.875% BANs (Series 1993A)/(Middlesex Water Co.),
12/1/93 NR(3) 1,250,000
---------------------------------------------------------------------
1,400,000 New Jersey Health Care Facilities Financing Authority, 2.90% SB
(Series D)/(Chilton Memorial Hospital), 7/1/94 NR(3) 1,400,000
---------------------------------------------------------------------
1,000,000 New Jersey Turnpike Authority Weekly VRDNs (Series 1991D)/(FGIC
Insured) A-1+ 1,000,000
---------------------------------------------------------------------
760,000 Palisades Park, NJ, 2.75% BANs, 5/24/94 NR(3) 760,515
---------------------------------------------------------------------
2,500,000 Pemberton Township, NJ, 3.15% TANs, 2/28/94 NR(4) 2,501,575
---------------------------------------------------------------------
2,000,000 Port Authority of New York and New Jersey Special Project Bonds
Weekly VRDNs (Series 3)/(KIAC Partners)/(Deutsche Bank AG
LOC)/(Subject to AMT) A-1+ 2,000,000
---------------------------------------------------------------------
9,000,000 Port Authority of New York and New Jersey Weekly VRDNs (Series
1991-4)/(Subject to AMT) P-1 9,000,000
---------------------------------------------------------------------
738,600 Runnemede, NJ, 2.84% BANs, 3/25/94 NR(4) 738,853
---------------------------------------------------------------------
1,045,000 Sparta Township, NJ, 3.14% BANs, 11/5/93 NR(3) 1,045,012
---------------------------------------------------------------------
1,025,000 Wall Township, NJ, 3.07% BANs, 1/13/94 NR(3) 1,025,338
---------------------------------------------------------------------
1,665,800 West Milford Township, NJ, 3.28% BANs, 1/28/94 NR(3) 1,666,501
---------------------------------------------------------------------
1,409,450 Winslow Township, NJ, 2.78% BANs, 6/17/94 NR(3) 1,410,562
---------------------------------------------------------------------
2,000,000 Woodbury, NJ, 2.99% BANs, 4/15/94 NR 2,002,140
---------------------------------------------------------------------
1,209,000 Woodbury, NJ, 3.75% BANs, 3/4/94 NR 1,212,957
---------------------------------------------------------------------
</TABLE>
NEW JERSEY MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- --------------------------------------------------------------------- ----------- --------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------------------
NEW JERSEY--CONTINUED
---------------------------------------------------------------------
$ 1,000,000 Woodcliffe Lake, NJ, 2.83% BANs, 6/10/94 NR(3) $ 1,000,764
--------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (AT AMORTIZED COST) $ 88,065,244\
--------------------------------------------------------------------- --------------
</TABLE>
* See Notes to Portfolio of Investments.
\ Also represents cost for federal tax purposes.
The following abbreviations are used in this portfolio:
AMT--Alternative Minimum Tax
BANs--Bond Anticipation Notes
BPA--Bond Purchase Agreement
EDA--Economic Development Authority
FGIC--Financial Guaranty Insurance Group
LOC--Letter of Credit
SB--Serial Bond
TANs--Tax Anticipation Notes
VRDNs--Variable Rate Demand Notes
Note: The categories of investments are shown as a percentage of net assets
($87,351,092) at October 31, 1993.
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
S&P
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S
Moody's short-term ratings are designated Moody's Investment Grade (MIG OR VMIG
(see below)). The purpose of the MIG or VMIG ratings is to provide investors
with a simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
FITCH
Fitch's short-term ratings place greater emphasis on the existence of liquidity
necessary to meet the issuer's obligations in a timely manner.
F-1_ Strongest degree of assurance for timely payment. Those issues determined
to provide exceptionally strong credit quality are given a plus (+)
designation.
F-2_ Notes reflecting a degree of assurance for timely payment only slightly
less in degree than the highest category.
VARIABLE RATE DEMAND NOTES (VRDNS)
AND
TENDER OPTION BONDS (TOBS)
RATINGS
S&P
Standard & Poor's assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-1+, AA/A-1+, and A/A-1. (The
definitions for the long-term and the short-term ratings are provided below.)
MOODY'S
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity.
In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the
first representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the second representing an evaluation of
the degree of risk associated with the demand feature. The VMIG rating can be
assigned a 1 or 2 designation using the same definitions described above for the
MIG rating.
FITCH
Fitch usually assigns two ratings to long-term debt issues that include
provisions for a variable rate demand feature. The long-term rating addresses
the ability of the obligor to pay debt service and the short-term rating
addresses the timely payment of the demand feature. Examples of rating
designation are as follows: AAA/F-1+, AA/F-1+, and A/F-1. (The definitions for
the long-term and short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
S&P
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."
MOODY'S
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
The following is an explanation of the Fitch ratings. These ratings are not
referenced in the Portfolio of Investments.
FITCH
F-1 Issues assigned this rating reflect a strong degree of assurance for timely
payment. Those issuers determined to possess the strongest degree of
assurance for timely payment are denoted with a plus (+) sign designation.
F-2 Issuers carrying this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the "F-1+" and
"F-1" categories.
LONG-TERM DEBT RATINGS
(INVESTMENT GRADE)
S&P
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
principal and interest than debt rated in higher ratings categories.
MOODY'S
Aaa Bonds that are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large margin and
principal is secure. While the various protective elements are likely to
change, such changes which can be foreseen are most unlikely to impair
the fundamentally strong position of such issues.
Aa Bonds that are rated AA are judged to be of high quality by all
standards. Together with the AAA group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in AAA securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in AAA securities.
A Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are
considered adequate, but elements may be present that suggest a
susceptibility to impairment some time in the future.
Baa Bonds which are rated BAA are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
FITCH
AAA Bonds that are rated AAA are of the highest credit quality. The obligor
has an exceptionally strong ability to pay debt service.
AA Bonds that are rated AA are of very high quality. The obligor has a very
strong ability to pay debt service. Debt rated in this category may also
have a (+) or (-) sign with a rating to indicate the relative position
within the rating category.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
NR indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P, Moody's, or Fitch with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated in one of the two highest short-term ratings
categories by a nationally recognized statistical rating organization.
NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by
Fitch.
NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch.
NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "A" by Standard & Poor's, Moody's, or Fitch.
NR(4) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by
Fitch.
NEW JERSEY MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $ 88,065,244
- --------------------------------------------------------------------------------------------------
Cash 207,279
- --------------------------------------------------------------------------------------------------
Interest receivable 616,717
- --------------------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 21,922
- -------------------------------------------------------------------------------------------------- --------------
Total assets 88,911,162
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------------
Payable for investments purchased $ 1,402,143
- -----------------------------------------------------------------------------------
Dividends payable 128,480
- -----------------------------------------------------------------------------------
Payable for Fund shares redeemed 1,778
- -----------------------------------------------------------------------------------
Accrued expenses and other liabilities 27,669
- ----------------------------------------------------------------------------------- -------------
Total liabilities 1,560,070
- -------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 87,351,092 shares of beneficial interest outstanding $ 87,351,092
- -------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- --------------------------------------------------------------------------------------------------
Institutional Shares ($66,345,642 / 66,345,642 shares of beneficial interest outstanding) $1.00
- -------------------------------------------------------------------------------------------------- --------------
Institutional Service Shares ($21,005,450 / 21,005,450 shares of beneficial interest outstanding) $1.00
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 2,670,057
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 404,029
- --------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 292,432
- --------------------------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 111,903
- --------------------------------------------------------------------------------------
Trustees' fees 2,746
- --------------------------------------------------------------------------------------
Auditing fees 17,815
- --------------------------------------------------------------------------------------
Legal fees 12,207
- --------------------------------------------------------------------------------------
Printing and postage 20,163
- --------------------------------------------------------------------------------------
Fund share registration costs 39,181
- --------------------------------------------------------------------------------------
Distribution services fees (Note 5) 56,220
- --------------------------------------------------------------------------------------
Insurance premiums 6,607
- --------------------------------------------------------------------------------------
Taxes 2,213
- --------------------------------------------------------------------------------------
Miscellaneous 7,106
- -------------------------------------------------------------------------------------- -----------
Total expenses 972,622
- --------------------------------------------------------------------------------------
Deduct--
- --------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 404,029
- -------------------------------------------------------------------------
Reimbursement of other operating expenses (Note 5) 51,345
- -------------------------------------------------------------------------
Waiver of distribution services fees (Note 5) 4,206 459,580
- ------------------------------------------------------------------------- ----------- -----------
Net expenses 513,042
- --------------------------------------------------------------------------------------------------- -------------
Net investment income $ 2,157,015
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1993 1992
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------
Net investment income $ 2,157,015 $ 2,422,424
- ----------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -----------------------------------------------------------------------------
Institutional Shares (1,458,805) (1,595,419)
- -----------------------------------------------------------------------------
Institutional Service Shares (602,534) (706,680)
- -----------------------------------------------------------------------------
Cash Series Shares (95,676) (120,325)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from distributions to shareholders (2,157,015) (2,422,424)
- ----------------------------------------------------------------------------- ---------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------
Proceeds from sale of shares 344,229,882 257,860,604
- -----------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 213,366 200,781
- -----------------------------------------------------------------------------
Cost of shares redeemed (346,170,580) (232,804,903)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from Fund share transactions (1,727,332) 25,256,482
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets (1,727,332) 25,256,482
- -----------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------
Beginning of period 89,078,424 63,821,942
- ----------------------------------------------------------------------------- ---------------- ----------------
End of period $ 87,351,092 $ 89,078,424
- ----------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company
with several portfolios. The financial statements included herein are only those
of New Jersey Municipal Cash Trust (the "Fund"). The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
Effective October 6, 1993, the Fund provided two classes of shares
("Institutional Service Shares" and "Institutional Shares"). Institutional
Service Shares are identical in all respects to Institutional Shares except that
Institutional Service Shares are sold pursuant to a distribution plan ("Plan")
adopted in accordance with Investment Company Act Rule 12b-1. Prior to October
6, 1993, the Fund offered a third class of shares ("Cash Series Shares"). Cash
Series Shares were identical in all respects to Institutional Shares except that
Cash Series Shares, like Institutional Service Shares, were sold pursuant to a
distribution plan ("Plan") adopted in accordance with Investment Company Act
Rule 12b-1.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined
that the best method currently available for valuing portfolio securities
is amortized cost. The Fund's use of the amortized cost method to value its
portfolio securities is conditioned on its compliance with Rule 2a-7 under
the Investment Company Act of 1940.
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state, than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such
factors, at October 31, 1993, 50.5% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The
aggregate percentages by financial institution ranged from 0.4% to 7.6% of
total investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest earned net of premium, and original issue discount as
required by the Internal Revenue Code (the "Code").
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code applicable to investment companies and to distribute
to shareholders each year all of its net income. Accordingly, no provision
for federal tax is necessary. Dividends paid by the Fund not representing
net interest received on tax-exempt municipal securities are includable by
shareholders as gross income for federal income tax purposes because the
Fund intends to meet certain requirements of the Code applicable to
regulated investment companies which will enable the Fund to pay
exempt-interest dividends. The portion of such interest, if any, earned on
private activity bonds issued after August 7, 1986 may be considered a tax
preference item to shareholders for the purpose of computing the
alternative minimum tax.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Fund
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objective and policies
and not for the purpose of investment leverage. The Fund will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Fund will maintain security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method through December, 1995.
F. EXPENSES--Expenses of the Fund (other than distribution services fees) and
waivers and reimbursements, if any, are allocated to each class of shares
based on its relative daily average net assets for the period. Expenses
incurred by the Trust which do not specifically relate to an individual
fund are allocated among all funds based on a fund's relative net asset
value size or as deemed appropriate by the administrator.
G. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) DIVIDENDS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash, or in additional
shares at the net asset value on the payable date.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1993, capital paid-in aggregated $87,351,092.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SHARES 1993 1992
<S> <C> <C>
Shares outstanding, beginning of period 57,657,084 39,423,429
- --------------------------------------------------------------------------------
Shares sold 184,549,947 136,820,582
- --------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 2,221 3,244
- --------------------------------------------------------------------------------
Shares redeemed (175,863,610) (118,590,171)
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period 66,345,642 57,657,084
- -------------------------------------------------------------------------------- --------------- ---------------
<CAPTION>
INSTITUTIONAL SERVICE SHARES
<S> <C> <C>
Shares outstanding, beginning of period 26,843,665 17,709,241
- --------------------------------------------------------------------------------
Shares sold 141,401,508 114,462,133
- --------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 134,265 105,233
- --------------------------------------------------------------------------------
Shares redeemed (147,373,988) (105,432,942)
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period 21,005,450 26,843,665
- -------------------------------------------------------------------------------- --------------- ---------------
<CAPTION>
CASH SERIES SHARES
<S> <C> <C>
Shares outstanding, beginning of period 4,577,675 6,689,272
- --------------------------------------------------------------------------------
Shares sold 18,278,427 6,577,889
- --------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 76,880 92,304
- --------------------------------------------------------------------------------
Shares redeemed (22,932,982) (8,781,790)
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period -- 4,577,675
- -------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Management, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to .40 of 1% of the Fund's
average daily net assets. Adviser has voluntarily agreed to waive all or a
portion of its fee. The Adviser can terminate this voluntary waiver of expenses
at any time at its sole discretion. For the fiscal year ended October 31, 1993,
the Adviser earned $404,029, all of which was voluntarily waived. In addition,
Adviser voluntarily reimbursed $51,345 of the Fund's normal operating expenses.
Organizational expenses ($61,531) and start-up administrative services expenses
($16,639) were borne initially by the Adviser. The Fund has agreed to pay the
Adviser, at an annual rate .005 of 1% of average daily net assets, until the
expenses borne by the Adviser are reimbursed, or the expiration of five years
after December 10, 1990, the date the Trust's portfolio became effective,
whichever occurs
earlier. During the fiscal year ended October 31, 1993, the Fund paid Adviser
$5,065 and $8,128, respectively, pursuant to this agreement.
During the fiscal year ended October 31, 1993, the Fund engaged in purchase and
sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7
of the Investment Company Act of 1940 amounting to $139,875,000 and
$151,274,752, respectively. These purchases and sales were conducted on an
arms-length basis insofar as they were transacted for cash consideration only,
at independent current market prices and without brokerage commission, fee or
other remuneration.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Trust will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the assets of the
Fund, for fees it paid which relate to the distribution and administration of
the Fund's Institutional Service Shares and Cash Series Shares. The Plan
provides that the Fund may incur distribution expenses up to .10 of 1% of the
average daily net assets of the Institutional Service Shares and .50 of 1% of
the average daily net assets of the Cash Series Shares, annually, to pay
commissions, maintenance fees and to compensate the distributor. During the
fiscal year ended October 31, 1993, FSC earned $29,018 in distribution services
fees for Institutional Service Shares and $27,202 for Cash Series Shares of
which $4,206 was voluntarily waived.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Certain Officers and Trustees of the
Trust are Officers and Directors of the above corporations.
(6) CURRENT CREDIT RATINGS
Current credit ratings and related notes are unaudited.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST (New Jersey Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of New
Jersey Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
investments, as of October 31, 1993, the related statement of operations for the
year then ended, and the statement of changes in net assets, and financial
highlights (see pages 2 and 18) for the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1993, by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of New
Jersey Municipal Cash Trust, an investment portfolio of Federated Municipal
Trust, as of October 31, 1993, the results of its operations for the year then
ended, and the changes in its net assets and financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania
December 13, 1993
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
New Jersey Municipal Cash Trust
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
NEW JERSEY MUNICIPAL
CASH TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Non-Diversified Portfolio of
Federated Municipal Trust, an Open-End
Management Investment Company
December 31, 1993
[LOGO] FEDERATED SECURITIES COPR.
--------------------------
DISTRIBUTOR
A SUBSIDIARY OF FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
0100802A-IS (12/93)
NEW JERSEY MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with
the respective prospectus for Institutional Shares and Institutional
Service Shares of New Jersey Municipal Cash Trust (the "Fund") dated
December 31, 1993. This Statement is not a prospectus itself. To
receive a copy of either prospectus, write or call Federated Municipal
Trust.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1993
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Acceptable Investments 1
When-Issued and Delayed Delivery
Transactions 1
Temporary Investments 2
Reverse Repurchase Agreements 2
Investment Limitations 2
New Jersey Investment Risks 4
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
- ---------------------------------------------------------------
Officers and Trustees 5
The Funds 7
Fund Ownership 8
Trustee Liability 8
INVESTMENT ADVISORY SERVICES 8
- ---------------------------------------------------------------
Adviser to the Fund 8
Advisory Fees 8
ADMINISTRATIVE SERVICES 9
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 9
- ---------------------------------------------------------------
PURCHASING SHARES 9
- ---------------------------------------------------------------
Distribution Plan
(Institutional Service Shares Only) 9
Conversion to Federal Funds 10
DETERMINING NET ASSET VALUE 10
- ---------------------------------------------------------------
Use of the Amortized Cost Method 10
REDEEMING SHARES 11
- ---------------------------------------------------------------
Redemption in Kind 11
TAX STATUS 11
- ---------------------------------------------------------------
The Fund's Tax Status 11
YIELD 11
- ---------------------------------------------------------------
EFFECTIVE YIELD 12
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 12
- ---------------------------------------------------------------
Tax-Equivalency Table 12
PERFORMANCE COMPARISONS 14
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was
established as a Massachusetts business trust under a Declaration of Trust dated
September 1, 1989.
Shares of the Fund are offered in two classes, known as Institutional Shares and
Institutional Service Shares (individually and collectively referred to as
"Shares"). This Combined Statement of Additional Information relates to the
above-mentioned Shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income exempt from federal
regular income tax and the New Jersey state income tax imposed upon
non-corporate taxpayers consistent with stability of principal. The investment
objective cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of New
Jersey and of other states, territories and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from both federal regular income tax and New Jersey state
income tax imposed upon non-corporate taxpayers.
When determining whether a New Jersey municipal security presents minimal credit
risks, the investment adviser considers the creditworthiness of the issuer of
the security, the issuer of a demand feature if the Fund has the unconditional
right to demand payment for the security, or the guarantor of payment by either
of those issuers.
If a security loses its rating or the security's rating is reduced below the
required minimum after the Fund purchased it, the Fund is not required to sell
the security. The investment adviser considers this event, however, in its
determination of whether the Fund should continue to hold the security in its
portfolio. If ratings made by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") change because of changes in those
organizations or in their rating systems, the Fund will try to use comparable
ratings as standards in accordance with the investment policies described in the
Fund's prospectuses.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests which represent undivided proportional interests in lease
payments by a governmental or nonprofit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that
the participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they became
due. In the event of a default or failure of appropriation, unless the
participation interests are credit enhanced, it is unlikely that the
participants would be able to obtain an acceptable substitute source of
payment.
Under the criteria currently established by the Board of Trustees
("Trustees"), the Fund's investment adviser must consider the following
factors in determining the liquidity of municipal lease securities: (1)
the frequency of trades and quotes for the security; (2) the volatility
of quotations and trade prices for the security; (3) the number of
dealers willing to purchase or sell the security and the number of
potential purchasers;
(4) dealer undertakings to make a market in the security; (5) the nature
of the security and the nature of the marketplace trades; (6) the rating
of the security and the financial condition and prospects of the issuer
of the security; (7) such other factors as may be relevant to the Fund's
ability to dispose of the security; (8) whether the lease can be
terminated by the lessee; (9) the potential recovery, if any, from a sale
of the leased property upon termination of the lease; (10) the lessee's
general credit strength; (11) the likelihood that the lessee will
discontinue appropriating funding for the leased property because the
property is no longer deemed essential to its operations; and (12) any
credit enhancement or legal recourse provided upon an event of
nonappropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
The Fund may engage in these transactions to an extent that would cause the
segregation of an amount up to 20% of the total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in high quality temporary investments during times of
unusual market conditions for defensive purposes and to maintain liquidity.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale
to repurchase them at a mutually agreed upon time and price within one
year from the date of acquisition. The Fund or its custodian will take
possession of the securities subject to repurchase agreements and these
securities will be marked to market daily. To the extent that the
original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund will only enter
into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's
investment adviser to be creditworthy pursuant to guidelines established
by the Trustees.
From time to time, such as when suitable New Jersey municipal securities are not
available, the Fund may maintain a portion of its assets in cash. Any portion of
the Fund's assets maintained in cash will reduce the amount of assets in New
Jersey municipal securities and thereby reduce the Fund's yield.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
During the period any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse repurchase agreements,
the Fund will restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date on the reverse repurchase
agreement.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for the
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts
borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess of 5% of
its total assets are outstanding.
During the period any reverse repurchase agreements are outstanding, the
Fund will restrict the purchase of portfolio securities to money market
instruments maturing on or before the expiration date of the reverse
repurchase agreements, but only to the extent necessary to assure
completion of the reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge.
DIVERSIFICATION OF INVESTMENTS
With regard to at least 50% of its total assets, no more than 5% of its
total assets are to be invested in the securities of a single issuer, and
no more than 25% of its total assets are invested in the securities of a
single issuer at the close of each quarter of each fiscal year. Under
this limitation, each governmental subdivision, including states,
territories, possessions of the United States, including the District of
Columbia, or their political subdivisions, agencies, authorities,
instrumentalities, or similar entities, will be considered a separate
issuer if its assets and revenues are separate from those of the
governmental body creating it and the security is backed only by its own
assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
nongovernmental issuer are considered to be issued solely by that issuer.
If, in the case of an industrial development bond or government-issued
security, a governmental or other entity guarantees the security, such
guarantee would be considered a separate security issued by the
guarantor, as well as the other issuer, subject to limited exclusions
allowed by the Investment Company Act of 1940.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of 1933 except
for certain restricted securities which meet the criteria for liquidity
as established by the Board of Trustees.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or nonpublicly issued New Jersey municipal securities or
temporary investments or enter into repurchase agreements, in accordance
with its investment objective, policies, limitations and its Declaration
of Trust.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of
the value of its assets in cash or cash items (including instruments
issued by a U.S. branch of a domestic bank or savings and loan having
capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment), securities issued or guaranteed by the U.S.
government, its agencies, or instrumentalities, or instruments secured by
these money market instruments, such as repurchase agreements.
The above investment limitations cannot be changed without shareholder approval.
The Fund does not consider the issuance of separate classes of shares to involve
the issuance of "senior securities" within the meaning of the investment
limitation set forth above. The following limitations, however, may be changed
by the Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, reorganization, or other
acquisition.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
industrial development bonds or other municipal securities where the
principal and interest are the responsibility of companies (or
guarantors, where applicable) with less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
DEALING IN PUTS AND CALLS
The Fund will not purchase or sell puts, calls, straddles, spreads, or
any combination of them, except that the Fund may purchase municipal
securities accompanied by agreements of sellers to repurchase them at the
Fund's option.
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs, or leases.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
securities which are illiquid, including repurchase agreements providing
for settlement in more than seven days after notice, certain restricted
securities not determined by the Trustees to be liquid, and
non-negotiable fixed time deposits with maturities over seven days.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its net assets during the coming fiscal year.
NEW JERSEY INVESTMENT RISKS
The Fund invests in obligations of New Jersey (the "State") issuers which result
in the Fund's performance being subject to risks associated with the overall
conditions present within the State. The following information is a general
summary of the State's financial condition and a brief summary of the prevailing
economic conditions. This information is based on official statements relating
to securities that are believed to be reliable but should not be considered as a
complete description of all relevant information.
The State has experienced severe financial strain as a result of the recent
recession. The State's revenues fell and expenditures rose while the economy
contracted. These events lead to the shrinkage of New Jersey's once sizable
budget surpluses and lead to operating deficits from 1989 through 1992. The
State used non-recurring measures to balance its budgets during this lean time,
and in 1993 ended with an $855 million surplus. To maintain this type of
surplus, the State is relying on an improving economic forecast that may be
unlikely under present circumstances. Therefore, financial improvement remains
uncertain.
The New Jersey economy is well diversified. With its location between New York
City and Philadelphia and a vast transportation network, the State is home to
many corporate headquarters, as well as manufacturing facilities. The State also
has a large tourism industry with Atlantic City and the Atlantic coast providing
much of the draw. However, unemployment in New Jersey over the past two years
has exceeded the national average as New Jersey and the Northeast lead the
country into the recent recession. In addition, population growth has been
modest.
The overall condition of the State is further demonstrated by its debt ratings.
Until recently, Moody's rated New Jersey AAA; however, the State was downgraded
to AA1 in 1992. Standard & Poor's first rated the State AAA in 1961; that has
changed as of 1991 when it was downgraded to AA+.
The Fund's concentration in securities issued by the State and its political
subdivisions provides a greater level of risk than a fund whose assets are
diversified across numerous states and municipal issuers. The ability of the
State or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political, and demographic
conditions within the State; and the underlying fiscal condition of the State,
its counties, and its municipalities.
FEDERATED MUNICIPAL TRUST MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Management,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, Inc., and the Funds (as defined below).
<TABLE>
<S> <C> <C>
POSITIONS WITH
NAME AND ADDRESS THE TRUST PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
John F. Donahue\* Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer
and Director, Trustee, or Managing General Partner of the Funds;
formerly, Director, The Standard Fire Insurance Company. Mr.
Donahue is the father of J. Christopher Donahue, Vice President of
the Trust.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation, Senior
Wood/IPC Vice-President, John R. Wood and Associates, Inc., Realtors;
Commercial Department President, Northgate Village Development Corporation; General
John R. Wood and Partner or Trustee in private real estate ventures in Southwest
Associates, Inc., Realtors Florida; Director, Trustee, or Managing General Partner of the
3255 Tamiami Trail North Funds; formerly, President, Naples Property Management, Inc.
Naples, FL
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker,
One PNC Plaza-23rd Floor Inc.; Director, Trustee, or Managing General Partner of the Funds;
Pittsburgh, PA formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank
Corp. and Director, Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
571 Hayward Mill Road Director, Trustee, or Managing General Partner of the Funds;
Concord, MA formerly, Director, Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and
3471 Fifth Avenue Montefiore Hospitals; Clinical Professor of Medicine and Trustee,
Suite 1111 University of Pittsburgh; Director, Trustee, or Managing General
Pittsburgh, PA Partner of the Funds.
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
formerly, Counsel, Horizon Financial, F.A., Western Region.
Glen R. Johnson* President and Trustee, Federated Investors; President and/or Trustee of some of
Federated Investors Tower Trustee the Funds; staff member, Federated Securities Corp. and Federated
Pittsburgh, PA Administrative Services, Inc.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee, or Managing General Partner of the Funds;
Boston, MA formerly, President, State Street Bank and Trust Company and State
Street Boston Corporation and Trustee, Lahey Clinic Foundation,
Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare,
5916 Penn Mall Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee,
Pittsburgh, PA or Managing General Partner of the Funds; formerly, Vice Chairman,
Horizon Financial, F.A.
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee,
1202 Cathedral of Carnegie Endowment for International Peace, RAND Corporation,
Learning Online Computer Library Center, Inc., and U.S. Space Foundation;
University of Pittsburgh Chairman, Czecho Slovak Management Center; Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; formerly, Chairman, National Advisory
Council for Environmental Policy and
Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or
4905 Bayard Street Managing General Partner of the Funds.
Pittsburgh, PA
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated
Federated Investors Tower Advisers, Federated Management, and Federated Research; Trustee,
Pittsburgh, PA Federated Services Company; President and Director, Federated
Administrative Services, Inc.; President or Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of
the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Trust.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors;
Federated Investors Tower Chairman and Director, Federated Securities Corp.; President or
Pittsburgh, PA Vice President of the Funds; Director or Trustee of some of the
Funds.
Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice
Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management,
Pittsburgh, PA and Federated Research; Trustee, Federated Services Company;
Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Chairman, Treasurer, and Director, Federated
Administrative Services, Inc.; Trustee or Director of some of the
Funds; Vice President and Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors Tower and Secretary Investors; Vice President, Secretary, and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Trustee,
Federated Services Company; Executive Vice President, Secretary,
and Director, Federated Administrative Services, Inc.; Executive
Vice President and Director, Federated Securities Corp.; Vice
President and Secretary of the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower President, Federated Securities Corp.; President and Trustee,
Pittsburgh, PA Federated Advisers, Federated Management, and Federated Research;
Vice President of the Funds; Director, Trustee, or Managing
General Partner of some of the Funds; formerly, Vice President,
The Standard Fire Insurance Company and President of its Federated
Research Division.
</TABLE>
*This Trustee is deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940, as amended.
\Member of the Trust's Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series,
Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT
Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated
Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed
Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Intermediate Municipal Trust; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund,
Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust, Inc.--1999;
Liberty U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid
Cash Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New
York Municipal Cash Trust; 111 Corcoran Funds; The Passageway Funds; The
Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds;
Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term
U.S. Government Securities; and Trust for U.S. Treasury Obligations.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding Shares.
As of November 29, 1993, the following shareholders of record owned 5% or more
of the outstanding Institutional Shares of the Fund: Board & Co., Glen Rock, New
Jersey, owned approximately 10,232,257 Shares (15.57%); Com II, Jersey City, New
Jersey, owned approximately 11,285,507 Shares (17.17%); Corestates Bank, N.A.,
Philadelphia, Pennsylvania, owned approximately 9,993,675 Shares (15.21%);
Fiduciary Trust Company International, New York, New York, owned approximately
5,920,000 Shares (9.01%); Central Jersey Bank & Trust Company, Freehold, New
Jersey, owned approximately 7,291,700 Shares (11.10%); and Tellson & Co.,
Gladstone, New Jersey, owned approximately 11,877,539 Shares (18.08%).
As of November 29, 1993, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of the Fund: Fiduciary Trust
Company International, New York, New York, owned approximately 9,210,500 Shares
(36.87%); BNK Restoration Co., Inc., Clifton, New Jersey, owned approximately
1,263,528 Shares (5.06%); Radnor Alloys Inc., Harrison, New Jersey, owned
approximately 2,604,950 Shares (10.43%); and Perillo Tours, Woodcliff Lake, New
Jersey, owned approximately 4,321,270 Shares (17.30%).
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All of the Class A (voting) shares of Federated Investors
are owned by a trust, the trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue. John F. Donahue is Chairman and Trustee,
Federated Management; Chairman and Trustee, Federated Investors; and Chairman
and Trustee of the Trust. John A. Staley, IV, is President and Trustee,
Federated Management; Vice President and Trustee, Federated Investors; Executive
Vice President, Federated Securities Corp.; and Vice President of the Trust. J.
Christopher Donahue is Trustee, Federated Management; President and Trustee,
Federated Investors; President and Director, Federated Administrative Services,
Inc.; and Vice President of the Trust. John W. McGonigle is Vice President,
Secretary, and Trustee, Federated Management; Trustee, Vice President, Secretary
and General Counsel, Federated Investors; Executive Vice President, Secretary
and Director, Federated Administrative Services, Inc.; Executive Vice President
and Director, Federated Securities Corp.; and Vice President and Secretary of
the Trust.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
October 31, 1993, 1992, and 1991, the Fund's adviser earned $404,029, $347,416,
and $210,959, respectively, all of which was voluntarily waived because of
undertakings to limit the Fund's expenses.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
These arrangements are not part of the advisory contract and have been
established only to comply with applicable state authorities. They may be
amended or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund at approximate cost.
For the fiscal years ended October 31, 1993, 1992, and 1991, the Fund incurred
costs for administrative services of $292,432, $244,864, and $181,824,
respectively. John A. Staley, IV, an officer of the Trust, and Dr. Henry J.
Gailliot, an officer of Federated Management, the adviser to the Fund, each hold
approximately 15% and 20%, respectively, of the outstanding common stock and
serve as directors of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services, Inc. For the
fiscal years ended October 31, 1993, 1992, and 1991, Federated Administrative
Services, Inc., paid approximately $165,431, $189,741, and $187,677,
respectively, for services provided by Commercial Data Services, Inc.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the investment adviser will generally use those
who are recognized dealers in specific portfolio instruments, except when a
better price and execution of the order can be obtained elsewhere. The adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve wire system are open for business.
The procedure for purchasing Shares is explained in the respective prospectus
under "Investing in Institutional Shares" and "Investing in Institutional
Service Shares."
DISTRIBUTION PLAN (INSTITUTIONAL SERVICE SHARES ONLY)
With respect to Institutional Service Shares of the Fund, the Trust has adopted
a Plan pursuant to Rule 12b-1 which was promulgated by the Securities and
Exchange Commission under the Investment Company Act of 1940. The Plan provides
for payment of fees to Federated Securities Corp. to finance any activity which
is principally intended to result in the sale of the Fund's Shares subject to
the Plan. Such activities may include the advertising and marketing of Shares;
preparing, printing, and distributing prospectuses and sales literature to
prospective shareholders, brokers, or administrators; and implementing and
operating the Plan. Pursuant to the Plan, the distributor may pay fees to
brokers for distribution and administrative services and to administrators for
administrative services as to Shares. The administrative services are provided
by a representative who has knowledge of the shareholder's particular
circumstances and goals, and include, but are not limited to: communicating
account openings; communicating account closings; entering purchase
transactions; entering redemption transactions; providing or arranging to
provide accounting support for all transactions; wiring funds and receiving
funds for Share purchases and redemptions; confirming and reconciling all
transactions; reviewing the activity in Fund accounts; providing training and
supervision of broker personnel; posting and reinvesting dividends to Fund
accounts or arranging for this service to be performed by the Fund's transfer
agent; and maintaining and distributing current copies of prospectuses and
shareholder reports to the beneficial owners of Shares and prospective
shareholders.
The Trustees expect that the adoption of the Plan will result in the sale of a
sufficient number of Shares so as to allow the Fund to achieve economic
viability. It is also anticipated that an increase in the size of the Fund will
facilitate more efficient portfolio management and assist the Fund in seeking to
achieve its investment objective.
For the fiscal years ended October 31, 1993, 1992, and 1991, brokers and
administrators (financial institutions) earned fees in the amount of $56,220,
$50,252 and $33,307, respectively, of which $4,206, $4,791, and $12,397,
respectively, were voluntarily waived pursuant to the distribution plan.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. State Street Bank and Trust
Company acts as the shareholder's agent in depositing checks and converting them
to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a Share at $1.00. The days on which
net asset value is calculated by the Fund are described in the respective
prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7, as amended (the
"Rule"), promulgated by the Securities and Exchange Commission under the
Investment Company Act of 1940. Under the Rule, the Trustees must establish
procedures reasonably designed to stabilize the net asset value per share, as
computed for purposes of distribution and redemption, at $1.00 per share, taking
into account current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party (1) on no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same-day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
Although demand features and standby commitments are techniques and are defined
as "puts" under the Rule, the Fund does not consider them to be "puts" as that
term is used in the Fund's investment limitations. Demand features and standby
commitments are features which enhance an instrument's liquidity, and the
investment limitation which proscribes puts is designed to prohibit the purchase
and sale of put and call options and is not designed to prohibit the Fund from
using techniques which enhance the liquidity of portfolio instruments.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.5% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risk and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than 397 days can be
purchased by the Fund. For a discussion of the treatment of variable rate
municipal securities with demand features, refer to "Variable Rate Demand
Notes" in the prospectus.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on Shares of
the Fund, computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above, may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on Shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
respective prospectus under "Redeeming Institutional Shares" and "Redeeming
Institutional Service Shares." Although State Street Bank does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective Fund's portfolio. To the extent
available, such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem Shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net asset
value of the respective class during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for Institutional Shares for the seven-day period ended October
31, 1993, was 2.10%. The yield for Institutional Service Shares was 2.00% for
the same period.
The Fund calculates its yield daily, for all classes of shares, based upon the
seven days ending on the day of the calculation, called the "base period." This
yield is computed by:
determining the net change in the value of a hypothetical account with a balance
of one share at the beginning of the base period, with the net change excluding
capital changes but including the value of any additional shares purchased with
dividends earned from the original one share and (on funds that pay dividends
daily) all dividends declared on the original and any purchased shares;
dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any class
of shares, the performance will be reduced for those shareholders paying those
fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Fund's effective yield for Institutional Shares for the seven-day period
ended October 31, 1993, was 2.12%. The effective yield for Institutional Service
Shares was 2.02% for the same period.
The Fund's effective yield for all classes of Shares is computed by compounding
the unannualized base period return by:
adding 1 to the base period return;
raising the sum to the 365/7th power; and
subtracting 1 from the result.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The Fund's tax-equivalent yield for Institutional Shares for the seven-day
period ended October 31, 1993, was 3.21%. The tax-equivalent yield for
Institutional Service Shares was 3.05% for the same period.
The tax-equivalent yield for both classes of Shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that either class of
Shares would have had to earn to equal its actual yield, assuming a 28% federal
tax rate and the 6.5% regular personal income tax rate imposed by New Jersey and
assuming that income earned by the Fund is 100% tax-exempt on a regular federal,
state, and local basis.
TAX-EQUIVALENCY TABLE
Both classes of Shares may also use a tax-equivalency table in advertising and
sales literature. The interest earned by the municipal securities in the Fund's
portfolio generally remains free from federal regular income tax and from the
regular personal income tax imposed by New Jersey*. As the table below
indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between "tax-free" and taxable yields.
<TABLE>
<S> <C> <C> <C> <C> <C>
TAXABLE YIELD EQUIVALENT FOR 1993
STATE OF NEW JERSEY
SINGLE RETURN
- -------------------------------------------------------------------------------
TAX BRACKET:
FEDERAL: 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE: 17.50% 34.50% 38.00% 43.00% 46.60%
- -------------------------------------------------------------------------------
SINGLE $1- $22,101- $53,501- $115,001- OVER
RETURN: 22,100 53,500 115,000 250,000 $ 250,000
- -------------------------------------------------------------------------------
TAX-EXEMPT YIELD
TAXABLE YIELD EQUIVALENT
- -------------------------------------------------------------------------------
1.50% 1.82% 2.29% 2.42% 2.63% 2.81%
2.00 2.42 3.05 3.23 3.51 3.75
2.50 3.03 3.82 4.03 4.39 4.68
3.00 3.64 4.58 4.84 5.26 5.62
3.50 4.24 5.34 5.65 6.14 6.55
4.00 4.85 6.11 6.45 7.02 7.49
4.50 5.45 6.87 7.26 7.89 8.43
5.00 6.06 7.63 8.06 8.77 9.36
5.50 6.67 8.40 8.87 9.65 10.30
6.00 7.27 9.16 9.68 10.53 11.24
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
TAXABLE YIELD EQUIVALENT FOR 1993
STATE OF NEW JERSEY
MARRIED FILING JOINT
- -------------------------------------------------------------------------------
TAX BRACKET:
FEDERAL: 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE: 17.50% 34.50% 37.50% 43.00% 46.60%
- -------------------------------------------------------------------------------
JOINT $1- $36,901- $89,151- $140,001- OVER
RETURN: 36,900 89,150 140,000 250,000 $ 250,000
- -------------------------------------------------------------------------------
TAX-EXEMPT YIELD
TAXABLE YIELD EQUIVALENT
- -------------------------------------------------------------------------------
1.50% 1.82% 2.29% 2.40% 2.63% 2.81%
2.00 2.42 3.05 3.20 3.51 3.75
2.50 3.03 3.82 4.00 4.39 4.68
3.00 3.64 4.58 4.80 5.26 5.62
3.50 4.24 5.34 5.60 6.14 6.55
4.00 4.85 6.11 6.40 7.02 7.49
4.50 5.45 6.87 7.20 7.89 8.43
5.00 6.06 7.63 8.00 8.77 9.36
5.50 6.67 8.40 8.80 9.65 10.30
6.00 7.27 9.16 9.60 10.53 11.24
</TABLE>
Note: For each chart, the maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Futhermore, additional state and local
taxes paid on comparable taxable investments were not used to increase federal
deductions.
The above charts are for illustrative purposes only. They are not an indicator
of past or future performance of either class of Shares.
*Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local regular or alternative minimum taxes.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of both classes of Shares depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates on money market instruments;
changes in the Fund's or either class of share's expenses; and
the relative amount of Fund cash flow.
From time to time, the Fund may advertise the performance of both classes of
Shares compared to similar funds or portfolios using certain indices, reporting
services, and financial publications. These may include the following:
LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "money market
funds" category in advertising and sales literature.
Investors may use such an index in addition to the prospectus of either class of
Shares to obtain a more complete view of the performance of that class before
investing. Of course, when comparing performance of either of the classes of
Shares to any index, factors such as composition of the index and prevailing
market conditions should be considered in assessing the significance of such
comparisons.
When comparing funds using reporting services, or total return and yield,
investors should take into consideration any relevant differences in funds such
as permitted portfolio composition and methods used to value portfolio
securities and compute offering price.
Advertisements and other sales literature for both classes of Shares may refer
to total return. Total return is the historic change in the value of an
investment in either class of Shares based on the monthly reinvestment of
dividends over a specified period of time.
0100802B (12/93)
OHIO MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH II SHARES
PROSPECTUS
The Cash II Shares of Ohio Municipal Cash Trust (the "Fund") offered by this
prospectus represent interests in a non-diversified portfolio of securities
which is one of a series of investment portfolios in Federated Municipal Trust
(the "Trust"), an open-end management investment company (a mutual fund). The
investment objective of the Fund is to provide current income exempt from
federal regular income tax and the personal income taxes imposed by the State of
Ohio and Ohio municipalities consistent with stability of principal. The Fund
invests primarily in short-term Ohio municipal securities, including securities
of states, territories, and possessions of the United States, which are not
issued by or on behalf of Ohio or its political subdivisions and financing
authorities, which are exempt from the federal regular and Ohio state income
tax. Cash II Shares are sold at net asset value, without a sales load.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THE CASH II SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in Cash II Shares. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for Cash
II Shares and Institutional Shares dated December 31, 1993 with the Securities
and Exchange Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference in this prospectus. You may
request a copy of the Combined Statement of Additional Information free of
charge by calling 1-800-235-4669. To obtain other information or to make
inquiries about the Fund, contact the Fund at the address listed in the back of
this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 31, 1993
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CASH II SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Variable Rate Demand Notes 4
Participation Interests 4
Municipal Leases 4
Ratings 4
Credit Enhancement 5
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed
Delivery Transactions 5
Temporary Investments 5
Ohio Municipal Securities 6
Standby Commitments 6
Ohio Investment Risks 6
Non-Diversification 7
Investment Limitations 7
Regulatory Compliance 7
FEDERATED MUNICIPAL TRUST INFORMATION 8
- ------------------------------------------------------
Management of Federated Municipal Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Cash II Shares 9
Distribution Plan 9
Administrative Arrangements 9
Administration of the Fund 10
Administrative Services 10
Custodian 10
Transfer Agent and
Dividend Disbursing Agent 10
Legal Counsel 10
Independent Public Accountants 10
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN CASH II SHARES 10
- ------------------------------------------------------
Share Purchases 10
Through a Financial Institution 10
Directly from the Distributor 11
By Wire 11
Minimum Investment Required 11
What Shares Cost 11
Systematic Investment Program 11
Automatic Investments 11
Subaccounting Services 12
Certificates and Confirmations 12
Dividends 12
Capital Gains 12
REDEEMING CASH II SHARES 12
- ------------------------------------------------------
Through a Financial Institution 12
Receiving Payment 13
By Check 13
By Wire 13
Directly from the Fund 13
By Mail 13
Signatures 13
Checkwriting 14
VISA Card 14
Redemption Before Purchase
Instruments Clear 14
Accounts with Low Balances 14
SHAREHOLDER INFORMATION 14
- ------------------------------------------------------
Voting Rights 14
Massachusetts Partnership Law 15
TAX INFORMATION 15
- ------------------------------------------------------
Federal Income Tax 15
Ohio Tax Considerations 16
Other State and Local Taxes 16
PERFORMANCE INFORMATION 17
- ------------------------------------------------------
OTHER CLASSES OF SHARES 17
- ------------------------------------------------------
Financial Highlights--Institutional Shares 18
FINANCIAL STATEMENTS 19
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 40
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
CASH II SHARES
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)......... None
Deferred Sales Load (as a percentage of original purchase price or redemption proceeds,
as applicable)............................................................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)............................. None
Exchange Fee................................................................................... None
ANNUAL CASH II SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)............................................................... 0.28%
12b-1 Fee...................................................................................... 0.30%
Other Expenses................................................................................. 0.27%
Total Cash II Shares Operating Expenses(2)................................................. 0.85%
</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 Total Cash II Shares Operating Expenses in the table above are based on
expenses expected during the fiscal year ending October 31, 1994. The Total Cash
II Shares Operating Expenses were 0.78% for the fiscal year ended October 31,
1993, and were 0.97% absent the voluntary waiver of a portion of the management
fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CASH II SHARES OF THE FUND WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN CASH II SHARES" AND "FEDERATED
MUNICIPAL TRUST INFORMATION." Wire-transferred redemptions of less than $5,000
may be subject to additional fees.
Long-term shareholders may pay more than economic equivalent of the maximum
front-end sales charge permitted under the rules of the National Association of
Securities Dealers, Inc. ("NASD"). However, in order for a Fund investor to
exceed the NASD's maximum front-end sales charge of 6.25%, a continuous
investment in the Fund for 125 years would be required.
<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. As noted in the table above, the Fund charges
no redemption fee for Cash II Shares......................... $ 9 $ 27 $ 47 $ 105
</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.
The information set forth in the foregoing table and example relates only to
Cash II Shares of the Fund. The Fund also offers another class of shares called
Institutional Shares.. Cash II Shares and Institutional Shares are subject to
certain of the same expenses; however, Institutional Shares are not subject to a
12b-1 fee. See "Other Classes of Shares."
OHIO MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS-CASH II SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 40.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------
1993 1992 1991*
-------- -------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00
- ---------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------
Net investment income 0.02 0.03 0.02
- --------------------------------------------------------------- -------- -------- -------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.03) (0.02)
- --------------------------------------------------------------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00
- --------------------------------------------------------------- -------- -------- -------
TOTAL RETURN** 2.02% 2.90% 2.27%(a)
- ---------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------
Expenses 0.78% 0.76% 0.63%(b)
- ---------------------------------------------------------------
Net investment income 2.01% 2.86% 4.18%(b)
- ---------------------------------------------------------------
Expense waiver/reimbursement (c) 0.19% 0.25% 0.34%(b)
- ---------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------
Net assets, end of period (000 omitted) $127,017 $133,877 $94,081
- ---------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 22, 1991 (date of initial
public investment) to October 31, 1991.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to the Fund, as of the date of this
prospectus, the Board of Trustees ("Trustees") have established two classes of
shares, known as Cash II Shares and Institutional Shares. This prospectus
relates only to Cash II Shares of the Fund.
Cash II Shares ("Shares") of the Fund are designed primarily for the retail
customers of financial institutions. A minimum initial investment of $25,000
over a 90-day period is required. The Fund may not be a suitable investment for
non-Ohio taxpayers or retirement plans since it invests primarily in Ohio
municipal securities.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal regular income tax and the personal income taxes imposed by the State of
Ohio and Ohio municipalities consistent with stability of principal. The
investment objective cannot be changed without approval of shareholders. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than Ohio.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of Ohio municipal securities with remaining maturities of 13 months or less at
the time of purchase by the Fund. As a matter of investment policy, which cannot
be changed without approval of shareholders, the Fund invests its assets so that
at least 80% of its annual interest income is exempt from federal regular and
Ohio state income taxes. The average maturity of the securities in the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless
indicated otherwise, the investment policies may be changed by the Trustees
without the approval of shareholders. Shareholders will be notified before any
material changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by
or on behalf of Ohio and its political subdivisions and financing authorities,
and obligations of other states, territories and possessions of the United
States, including the District of Columbia, and any political subdivision or
financing authority of any of these, the income from which is, in the opinion of
qualified legal
3
counsel, exempt from both federal regular income tax and Ohio state income tax
imposed upon non-corporate taxpayers. Examples of Ohio municipal securities
include, but are not limited to:
- tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
- bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
- municipal commercial paper and other short-term notes;
- variable rate demand notes;
- municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
- participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
municipal securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days' prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS. The Fund may purchase interests in municipal
securities from financial institutions such as commercial and investment
banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying municipal securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and may be considered to be illiquid. They may take the form
of a lease, an installment purchase contract, a conditional sales contract,
or a participation certificate on any of the above.
RATINGS. The Ohio municipal securities in which the Fund invests must either be
rated in one of the two highest short-term rating categories by one or more
nationally recognized statistical rating organizations ("NRSROs") or be of
comparable quality to securities having such ratings. An NRSRO's two highest
rating categories are determined without regard for sub-categories and
gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc.
("Moody's"), or FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service, Inc.
("Fitch") are all considered rated in one of the two highest short-term rating
categories. The Fund will follow applicable regulations in determining whether a
security rated by more than one
NRSRO can be treated as being in one of the two highest short-term rating
categories; currently, such securities must be rated by two NRSROs in one of
their two highest categories. See "Regulatory Compliance."
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit-enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit-enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
The Fund may have more than 25% of its total assets invested in securities
credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Board of Trustees, certain restricted securities are
considered liquid. To the extent restricted securities are deemed to be
illiquid, the Fund will limit their purchases, together with other securities
considered to be illiquid, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Ohio
municipal securities on a when-issued or delayed delivery basis. In when-issued
and delayed delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term, non-Ohio municipal
tax-exempt obligations or other taxable temporary investments. All temporary
investments will satisfy the same credit quality standards as the Fund's
acceptable investments. See "Ratings" above. Temporary investments include:
notes issued by or on behalf of municipal or corporate issuers; marketable
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; and repurchase agreements (arrangements in which banks,
broker/dealers, and other recognized financial institutions sell the Fund a
temporary investment and agree to repurchase it at a mutually agreed upon time
and price).
Although the Fund is permitted to make taxable temporary investments, there is
no current intention of generating income subject to federal regular or Ohio
state income taxes.
OHIO MUNICIPAL SECURITIES
Ohio municipal securities are generally issued to finance public works, such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities.
Ohio municipal securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS
Some securities dealers are willing to sell municipal securities to the Fund
accompanied by their commitments to repurchase the municipal securities prior to
maturity, at the Fund's option, for the amortized cost of the municipal
securities at the time of repurchase. These arrangements are not used to protect
against changes in the market value of municipal securities. They permit the
Fund, however, to remain fully invested and still provide liquidity to satisfy
redemptions. The cost of municipal securities accompanied by these "standby"
commitments could be greater than the cost of municipal securities without such
commitments. Standby commitments are not marketable or otherwise assignable and
have value only to the Fund. The default or bankruptcy of a securities dealer
giving such a commitment would not affect the quality of the municipal
securities purchased. However, without a standby commitment, these securities
could be more difficult to sell. The Fund enters into standby commitments only
with those dealers whose credit the investment adviser believes to be of high
quality. The Fund will only enter into standby commitments if there will be no
adverse effect on the exemption of distributions from Ohio state income taxes.
OHIO INVESTMENT RISKS
Yields on Ohio municipal securities depend on a variety of factors, including:
the general conditions of the short-term municipal market and the municipal bond
market; the size and maturity of the particular offering; the maturity of the
obligations; and the rating of the issue. Further, any adverse economic
conditions or developments affecting the State of Ohio or its municipalities
could impact the Fund's portfolio. The ability of the Fund to achieve its
investment objective also depends on the continuing ability of the issuers of
Ohio municipal securities and demand features for such securities, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due.
Investing in Ohio municipal securities which meet the Fund's quality standards
may not be possible if the State of Ohio or its municipalities do not maintain
their current credit ratings. In addition, certain Ohio constitutional
amendments, legislative measures, executive orders, administrative regulations,
and voter initiatives could result in adverse consequences affecting Ohio
municipal securities. An expanded discussion of the current economic risks
associated with the purchase of Ohio municipal securities is contained in the
Combined Statement of Additional Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified investment portfolio because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, with
regard to at least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 15% of the value of total assets to secure such
borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following investment limitations, however, can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
The Fund will not:
- invest more than 5% of its total assets in industrial development bonds
or other municipal securities when the payment of principal and interest
is the responsibility of companies (or guarantors, where applicable) with
less than three years of continuous operations, including the operation
of any predecessor; or
- commit more than 10% of its net assets to illiquid obligations.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Combined Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which regulates
money market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF FEDERATED MUNICIPAL TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of
Trustees is responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for the voluntary waiver of the advisory
fee by the adviser, the adviser may voluntarily waive some or all of the
advisory fee. This does not include reimbursement to the Fund of any
expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The adviser can terminate this voluntary waiver
of expenses at any time at its sole discretion. The adviser has also
undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
Trust, the Trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
DISTRIBUTION OF CASH II SHARES
Federated Securities Corp. is the principal distributor for Cash II Shares of
the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund
will pay to the distributor an amount computed at an annual rate of .30 of 1% of
the average daily net asset value of the Shares to finance any activity which is
principally intended to result in the sale of Shares subject to the Plan.
The distributor may from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the Shares exceed such lower expense limitation as
the distributor may, by notice to the Trust, voluntarily declare to be
effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("brokers")
to provide sales and/or administrative services as agents for their clients or
customers who beneficially own Shares of the Fund. Administrative services may
include, but are not limited to, the following functions: providing office
space, equipment, telephone facilities, and various clerical, supervisory,
computer and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding the Shares; assisting clients in
changing dividend options, account designations, and addresses; and providing
such other services as the Fund reasonably requests for Shares.
Financial institutions will receive fees from the distributor based upon Shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no payments
to the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Board of Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATIVE ARRANGEMENTS. In addition to the fees paid by the distributor to
financial institutions under the Plan as described above, the distributor may
also pay financial institutions a fee with respect to the average daily net
asset value of Shares held by their customers for providing
administrative services. The rate of such fee will be determined by the average
net asset value of the shares held by their customers in the Cash Series classes
of the Trust and Cash Trust Series, another registered investment company
distributed by Federated Securities Corp. This fee is in addition to amounts
paid under the Plan and, if paid, will be reimbursed by the adviser and not the
Fund.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary
of Federated Investors, provides the Fund with the administrative personnel and
services necessary to operate the Fund and the separate classes. Such services
include shareholder servicing and certain legal and accounting services.
Federated Administrative Services, Inc., provides these at approximate cost.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per Share is determined by adding the interest of the Shares in the value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in liabilities of the Fund and those attributable to Shares, and dividing the
remainder by the total number of Shares outstanding.
The Fund, of course, cannot guarantee that its net asset value will always
remain at $1.00 per Share.
INVESTING IN CASH II SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open for business. Shares may be purchased through a
financial institution which has a sales agreement with the distributor or
directly from the distributor, Federated Securities Corp. The Fund reserves the
right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders through a financial institution are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase Shares
directly from the distributor. To do so: complete and sign the new account form
available from the Fund; enclose a check payable to Ohio Municipal Cash
Trust-Cash II Shares; and mail both to Ohio Municipal Cash Trust, P.O. Box 8604,
Boston, Massachusetts 02266-8604.
The order is considered received after the check is converted by State Street
Bank and Trust Company into federal funds. This is generally the next business
day after State Street Bank receives the check.
BY WIRE. To purchase Shares by wire, call the Fund. All information needed will
be taken over the telephone, and the order is considered received when State
Street Bank receives payment by wire. Federal funds should be wired as follows:
State Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE;
For Credit to: Ohio Municipal Cash Trust - Cash II Shares; Fund Number (this
number can be found on the account statement or by contacting the Fund); Group
Number or Order Number; Title or Name of Account; and ABA Number 011000028.
Shares cannot be purchased by wire on days on which the New York Stock Exchange
is closed and on federal holidays restricting wire transfers.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund. Individual accounts
established through a bank or broker may be subject to a different minimum
investment requirement.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a bank or broker may be charged an additional service fee by that
bank or broker.
The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; or (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, shareholders may add to their investment on a
regular basis in a minimum amount of $500. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares. A shareholder may apply for participation in this
program through his financial institution.
AUTOMATIC INVESTMENTS
Investors may wish to establish accounts with their brokers or administrators to
have automatic investments made to the Fund. The investments may be made on
predetermined dates or when the investor's account reaches a certain level.
Participating brokers or administrators are responsible for
prompt transmission of orders relating to the program; however, they may charge
for this service and other services. Investors should read this prospectus in
connection with any broker's or administrator's agreement or literature
describing these services and fees.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Financial
institutions holding Shares in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the financial institution with regard to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the day after the check is converted, upon
instruction of the transfer agent, into federal funds. Dividends are
automatically reinvested on payment dates in additional Shares unless cash
payments are requested on an application or by contacting the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses,
if any, could result in a decrease in dividends. If, for some extraordinary
reason, the Fund realizes net long-term or short-term capital gains, it will
distribute them at least once every 12 months.
REDEEMING CASH II SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemptions can be made through a financial
institution or directly from the Fund. Redemption requests must be received in
proper form.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares by calling his/her financial institution (such
as a bank or an investment dealer) to request the redemption. Shares will be
redeemed at the net asset value next determined after State Street Bank receives
the redemption request from the financial institution. The
financial institution is responsible for promptly submitting redemption requests
and providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service. If, at
any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders will be promptly notified.
An authorization form permitting the Fund to accept redemption requests by
telephone must first be completed. Authorization forms and information on this
service are available from Federated Securities Corp.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, shareholders may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as By Mail, should be considered.
RECEIVING PAYMENT. Pursuant to instructions from the financial institution,
redemptions will be made by check or by wire.
BY CHECK. Normally a check for the proceeds is mailed within one business
day, but in no event more than seven days, after receipt of a proper
redemption request provided that the transfer agent has received payment
for the Shares from the shareholder. Dividends are paid up to and including
the day that a redemption request is processed.
BY WIRE. Proceeds for redemption requests received before 12:00 noon
(Eastern time) will be wired the same day but will not be entitled to that
day's dividend. Redemption requests received after 12:00 noon (Eastern
time) will receive that day's dividends and will be wired the following
business day.
DIRECTLY FROM THE FUND
BY MAIL. Any shareholder may redeem Shares by sending a written request to State
Street Bank. The written request should include the shareholder's name, the Fund
name and class of shares, the account number, and the share or dollar amount
requested. If Share certificates have been issued, they must be properly
endorsed and should be sent by registered or certified mail with the written
request. Shareholders should call the Fund for assistance in redeeming by mail.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request. Dividends are paid up to and including the day that a redemption
request is processed.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the Saving Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
CHECKWRITING. At the shareholder's request, State Street Bank will establish a
checking account for redeeming Shares. For further information, contact
Federated Securities Corp.
A fee may be charged for this service. With a Fund checking account, Shares may
be redeemed simply by writing a check. The redemption will be made at the net
asset value on the date that State Street Bank presents the check to the Fund. A
check may not be written to close an account. If a shareholder wishes to redeem
Shares and have the proceeds available, a check may be written and negotiated
through the shareholder's bank. Checks should never be sent to State Street Bank
to redeem Shares. Cancelled checks are returned to the shareholder each month.
VISA CARD. At the shareholder's request, State Street Bank will establish a VISA
account. The VISA account allows a shareholder to redeem Shares by using a VISA
card. A fee determined by State Street Bank will be charged to the account for
this service. For further information, contact Federated Securities Corp.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, the proceeds from the redemption of those
Shares are not available, and the Shares may not be exchanged, until State
Street Bank is reasonably certain that the purchase check has cleared, which
could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote. As of November 29, 1993, Gradison & Company, Inc., Cincinnati,
Ohio, owned 59.38% of the voting securities of the Cash II Shares of the Fund,
and, therefore, may, for certain purposes, be deemed to control the Cash II
Shares of the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of all series of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for such
acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument that the
Trust or its Trustees enter into or sign.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals, and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal
bonds, including private activity bonds. Thus, should it purchase any such
bonds, a portion of the Fund's dividends may be treated as a tax preference
item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, 75% of the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
OHIO TAX CONSIDERATIONS
Under existing Ohio laws, distributions made by the Fund will not be subject to
Ohio individual income tax if such distributions qualify as "exempt-interest
dividends" under the Internal Revenue Code, and represent (i) interest from
obligations of Ohio or its subdivisions which is exempt from federal income tax;
or (ii) interest or dividends from obligations issued by the United States and
its territories or possessions or by any authority, commission or
instrumentality of the United States which are exempt from state income tax
under federal laws. Conversely, to the extent that distributions made by the
Fund are derived from other types of obligations, such dividends will not be
exempt from Ohio individual income tax.
Distributions made by the Fund will not be subject to Ohio corporation franchise
tax if such distributions qualify as "exempt-interest dividends" under the Code,
and represent (i) interest from obligations of Ohio or its subdivisions which is
exempt from federal income tax; or (ii) net interest income from obligations
issued by the United States and its territories or possessions or by any
authority, commission or instrumentality of the United States, which is included
in federal taxable income and which is exempt from state income tax under
federal laws.
Exempt-interest dividends that represent interest from obligations held by the
Fund which are issued by the State of Ohio or its political subdivisions will be
exempt from any Ohio municipal income tax (even if the municipality is permitted
under Ohio law to levy a tax on intangible income).
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from regular state income taxes in
states other than Ohio or from personal property taxes. State laws differ on
this issue and shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield, effective yield, and
tax-equivalent yield for Cash II Shares.
The yield of Cash II Shares represents the annualized rate of income earned on
an investment in Cash II Shares over a seven-day period. It is the annualized
dividends earned during the period on the investment, shown as a percentage of
the investment. The effective yield is calculated similarly to the yield, but,
when annualized, the income earned by an investment in Cash II Shares is assumed
to be reinvested daily. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment. The
tax-equivalent yield of Cash II Shares is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that Cash II Shares would have had to
earn to equal their actual yield, assuming a specific tax rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Cash II Shares after reinvesting all income distributions. It
is calculated by dividing that change by the initial investment and is expressed
as a percentage.
Yield, effective yield, and tax-equivalent yield will be calculated separately
for Cash II Shares and Institutional Shares. Because the Cash II Shares are
subject to 12b-1 fees, the yield, the effective yield, and the tax-equivalent
yield for Institutional Shares will exceed the yield, the effective yield, and
the tax-equivalent yield for Cash II Shares for the same period.
From time to time, the Fund may advertise its performance of Institutional
Shares using certain reporting services and/or compare the performance of
Institutional Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Shares are sold to accounts for which financial institutions act
in a fiduciary or agency capacity. Institutional Shares are sold at net asset
value. Investments in Institutional Shares are subject to a minimum initial
investment of $25,000.
Institutional Shares are distributed without a 12b-1 Plan.
Financial institutions and brokers providing sales and administrative services
may receive different compensation depending upon which class of shares of the
Fund is sold. The distributor may pay an administrative fee to a financial
institution or broker for administrative services provided to the Cash II class,
in addition to fees paid pursuant to the 12b-1 Plan. Any fee paid by the
distributor for administrative services will not be an expense of the class, but
will be reimbursed to the distributor by the investment adviser.
The amount of dividends payable to Institutional Shares will exceed that of Cash
II Shares by the difference between class expenses and distribution expenses by
shares of each respective class.
The stated advisory fee is the same for both classes of shares.
17
OHIO MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS-INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 40.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------
1993 1992 1991*
-------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00
- --------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------
Net investment income 0.02 0.03 0.02
- -------------------------------------------------------------- ------- ------- -------
LESS DISTRIBUTIONS
- --------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.03) (0.02)
- -------------------------------------------------------------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00
- -------------------------------------------------------------- ------- ------- -------
TOTAL RETURN** 2.33% 3.21% 2.40%(a)
- --------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------
Expenses 0.48% 0.46% 0.35%(b)
- --------------------------------------------------------------
Net investment income 2.30% 3.10% 4.46%(b)
- --------------------------------------------------------------
Expense waiver/reimbursement (c) 0.19% 0.25% 0.32%(b)
- --------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------
Net assets, end of period (000 omitted) $81,748 $74,342 $44,771
- --------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 22, 1991 (date of initial
public investment) to October 31, 1991.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENT
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--102.3%
- ----------------------------------------------------------------------
OHIO--101.1%
--------------------------------------------------------
$ 500,000 Allen County, OH, IDR Weekly VRDNs (Nickles Bakery of
Ohio, Inc.)/(Society Bank N.A. LOC)/(Subject to AMT) P-1 $ 500,000
--------------------------------------------------------
3,000,000 Cincinnati, OH, Building Acquisition, 2.93% GO UT BANs,
6/1/94 NR(2) 3,002,197
--------------------------------------------------------
1,900,000 Cincinnati, OH, Student Loan Authority Weekly VRDNs
(Cincinnati Student Loan Funding Corp.)/(National
Westminster Bank PLC LOC)/(Subject to AMT) VMIG1 1,900,000
--------------------------------------------------------
1,175,000 Cincinnati, OH, Student Loan Funding Corp. Weekly VRDNs
(Series 1988B-1)/(Student Loan Funding Corp.)/ (Sumitomo
Bank Ltd. LOC)/(Subject to AMT) VMIG1 1,175,000
--------------------------------------------------------
5,375,000 Cincinnati, OH, Student Loan Revenue Bonds, 2.90% Annual
TOBs (Series 1987A)/(Cincinnati Student Loan Funding
Corp.)/(Fuji Bank Ltd. LOC)/(Subject to AMT), Mandatory
Tender 7/1/94 VMIG1 5,375,000
--------------------------------------------------------
4,000,000 Cincinnati--Hamilton County Port Authority Weekly VRDNs
(4th Street Limited Partnership)/(PNC Bank, Kentucky
LOC) P-1 4,000,000
--------------------------------------------------------
2,675,000 Cincinnati--Hamilton County Port Authority, 2.95% Annual
TOBs (Series 8)/(Bethesda One Limited Partnership)/(Bank
One, Columbus, N.A. LOC), Optional Tender 8/1/94 P-1 2,675,000
--------------------------------------------------------
9,000,000 Cleveland, OH, Gateway Economic Development Corp. Weekly
VRDNs (Gateway Stadium Authority)/(Fuji Bank Ltd.
LOC)/(Subject to AMT) A-1 9,000,000
--------------------------------------------------------
400,000 Cleveland, OH, IDA Weekly VRDNs (Garland Company)/
(Society Bank N.A. LOC) P-1 400,000
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
$2,000,000 Clinton County, OH, Hospital Authority Weekly VRDNs
(Clinton Memorial Hospital)/(BancOhio National Bank LOC) P-1 $ 2,000,000
--------------------------------------------------------
1,100,000 Columbus, OH, Sewer System Revenue Bonds Weekly VRDNs
(Series B)/(Sanwa Bank, Ltd. LOC) A-1+ 1,100,000
--------------------------------------------------------
1,295,000 Crawford County, OH, IDA, 2.95% TOBs (United
Photographic, Inc.)/(Bank One, Columbus N.A. LOC),
3/1/94 P-1 1,295,000
--------------------------------------------------------
1,000,000 Cuyahoga County, OH, IDA Weekly VRDNs (Animal Protection
League)/(Society Bank N.A. LOC) P-1 1,000,000
--------------------------------------------------------
765,000 Cuyahoga County, OH, IDA Weekly VRDNs (Parma-Commerce
Parkway-West)/(Society Bank N.A. LOC) P-1 765,000
--------------------------------------------------------
1,500,000 Cuyahoga County, OH, IDA Weekly VRDNs (Premier
Manufacturing)/(First National Bank, Louisville LOC)/
(Subject to AMT) P-1 1,500,000
--------------------------------------------------------
2,100,000 Cuyahoga County, OH, IDR Weekly VRDNs (East Park
Retirement Community, Inc.)/(Society Bank N.A. LOC)/
(Subject to AMT) P-1 2,100,000
--------------------------------------------------------
885,000 Cuyahoga County, OH, IDR Weekly VRDNs (Interstate Diesel
Service, Inc.)/(Huntington National Bank LOC)/ (Subject
to AMT) P-1 885,000
--------------------------------------------------------
500,000 Cuyahoga County, OH, Weekly VRDNs (Landerhaven Country
Club Estates Ltd.)/(Society Bank N.A. LOC) P-1 500,000
--------------------------------------------------------
3,470,000 Cuyahoga Falls, OH, 2.82% BANs, 3/9/94 NR(3) 3,472,034
--------------------------------------------------------
1,275,000 Cuyahoga Falls, OH, 2.87% BANs, 1/21/94 NR(3) 1,275,466
--------------------------------------------------------
5,000,000 Dayton, OH, Revenue Refunding Bonds Weekly VRDNs (Series
1993E)/(Emery Air Freight Corp.)/(Mellon Bank N.A. LOC) VMIG1 5,000,000
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
1,000,000 Elyria, OH, 2.82% LT GO BANs, 4/7/94 NR(3) 1,000,499
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
$1,640,000 Euclid, OH, 2.93% GO BANs, 9/29/94 NR(2) $ 1,641,880
--------------------------------------------------------
725,000 Fairfield County, OH, 3.32% Sewer Improvement Bonds,
11/19/93 NR 725,146
--------------------------------------------------------
2,415,000 Fairfield County, OH, 3.15% BANs, 10/28/94 NR 2,423,121
--------------------------------------------------------
1,459,672 Fayetteville-Perry, OH, Local School District, 2.93%
BANs, 6/10/94 NR 1,461,648
--------------------------------------------------------
3,345,000 Franklin County, OH, IDA Weekly VRDNs (Unicorn Leasing
Co.)/(Fifth Third Bank LOC)/(Subject to AMT) P-1 3,345,000
--------------------------------------------------------
4,500,000 Franklin County, OH, IDR Weekly VRDNs (Heekin Can,
Inc.)/(PNC Bank N.A. LOC) P-1 4,500,000
--------------------------------------------------------
2,000,000 Franklin County, OH, IDRB Weekly VRDNs (Tigerpoly
Manufacturing, Inc.)/(Mitsubishi Bank Ltd. LOC)/(Subject
to AMT) P-1 2,000,000
--------------------------------------------------------
7,800,000 Franklin County, OH, Weekly VRDNs (Series 1992)/
(Rickenbacker Holdings, Inc.)/(Bank One, Columbus N.A.
LOC) P-1 7,800,000
--------------------------------------------------------
2,000,000 Hamilton County, OH, 2.45% Metropolital Sewer System
Improvement and Revenue BANs (Series A), 12/1/93 NR(3) 2,000,000
--------------------------------------------------------
3,500,000 Hamilton County, OH, 2.74%, 11/10/93 NR(3) 3,500,034
--------------------------------------------------------
2,500,000 Hamilton County, OH, Hospital Authority Revenue Bonds
Weekly VRDNs (Series 1986A)/(Good Samaritan Hospital) A-1 2,500,000
--------------------------------------------------------
3,000,000 Hamilton County, OH, Sewer System Improvement and
Revenue Bonds Weekly VRDNs (P-FLOATS)/(FGIC Insured) VMIG1 3,000,000
--------------------------------------------------------
2,500,000 Hamilton, OH, 2.82% LT GO BANs, 6/17/94 NR(3) 2,500,298
--------------------------------------------------------
1,300,000 Hamilton, OH, 2.96%, 9/2/94 NR(3) 1,300,414
--------------------------------------------------------
1,210,000 Hilliard, OH, 2.94% BANs, 4/15/94 NR(3) 1,211,278
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
$ 760,000 Hillsboro, OH, IDR Weekly VRDNs (Series 1987)/
(TD Manufacturing Ltd.)/(Sanwa Bank Ltd. LOC)/
(Subject to AMT) VMIG1 $ 760,000
--------------------------------------------------------
2,000,000 Holmes County, OH, IDA Weekly VRDNs (Poultry Processing,
Inc.)/(Rabobank Nederland LOC)/(Subject to AMT) A-1+ 2,000,000
--------------------------------------------------------
400,000 Kettering, OH, IDA Weekly VRDNs (Center-Plex Venture,
Inc.)/(Society Bank N.A. LOC) P-1 400,000
--------------------------------------------------------
1,000,000 Lake County, OH, 2.80% LT BANs, 11/9/93 NR(2) 1,000,064
--------------------------------------------------------
1,735,000 Lake County, OH, 2.93% BANs, 10/13/94 NR(2) 1,737,072
--------------------------------------------------------
355,000 Lucas County, OH, Health Care Improvement Weekly VRDNs
(Sunshine Children's Home)/(National City Bank,
Cleveland LOC) P-1 355,000
--------------------------------------------------------
2,150,000 Lucas County, OH, Hospital Facility Improvement Revenue
Bonds Weekly VRDNs (Series 93)/(Lott Industries, Inc.)/
(National City Bank LOC) P-1 2,150,000
--------------------------------------------------------
2,400,000 Lucas County, OH, IDA Weekly VRDNs (Kuhlman Corp.)/
(Society Bank N.A. LOC) P-1 2,400,000
--------------------------------------------------------
3,000,000 Lucas County, OH, Various Purpose Improvement Notes,
3.87% BANs (Series 1993-1), 8/18/94 NR(4) 3,008,509
--------------------------------------------------------
1,500,000 Mahoning County, OH, IDR Weekly VRDNs (Tru-Cut Die
Corp.)/(PNC Bank, Ohio N.A. LOC)/(Subject to AMT) P-1 1,500,000
--------------------------------------------------------
3,025,000 Mahoning County, OH, Multifamily HFA Weekly VRDNs
(International Towers Inc.)/(Marine Bank, Warren LOC)/
(Subject to AMT) A-1 3,025,000
--------------------------------------------------------
1,660,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal
Products, Inc.)/(Bank One, Indianapolis LOC)/(Subject to
AMT) P-1 1,660,000
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
1,000,000 Massillon, OH, 3.13% BANs, 10/5/94 NR(3) 1,003,872
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
$ 700,000 Medina County, OH, IDA Weekly VRDNs (National Metal
Abrasive, Inc.)/(Society Bank N.A. LOC) P-1 $ 700,000
--------------------------------------------------------
520,000 Medina County, OH, IDR, 3.05% TOBs (Bopco Associates)/
(Bank One, Akron N.A. LOC)/(Subject to AMT), 3/1/94 NR 520,000
--------------------------------------------------------
750,000 Middleburg Heights, OH, 2.83% BANs 6/2/94 NR(2) 750,980
--------------------------------------------------------
3,800,000 Montgomery County, OH, IDA Weekly VRDNs (Series
1992)/(Badger Paper Mills, Inc.)/(Central Trust Co. N.A.
LOC)/(Subject to AMT) P-1 3,800,000
--------------------------------------------------------
1,000,000 Moraine, OH, 2.50% BANs, 11/17/93 NR 1,000,043
--------------------------------------------------------
500,000 Muskingham County, OH, Hospital Facilities Authority
Weekly VRDNs (Bethesda Care Systems)/(BancOhio National
Bank LOC) VMIG1 500,000
--------------------------------------------------------
1,385,000 Napoleon, OH, 2.49% BANs, 2/23/94 NR(3) 1,385,208
--------------------------------------------------------
3,000,000 North Olmsted, OH, 2.94% BANs, 3/24/94 MIG1 3,003,554
--------------------------------------------------------
420,000 North Olmsted, OH, IDA Weekly VRDNs
(Bryant & Stratton Corp.)/(Society Bank N.A. LOC)/
(Subject to AMT) P-1 420,000
--------------------------------------------------------
825,000 North Olmsted, OH, IDR, 3.00% (Therm-All)/(National City
Bank LOC), 2/1/94 P-1 825,000
--------------------------------------------------------
2,430,000 Ohio Housing Finance Agency Weekly VRDNs
(Westchester Village)/(Society Bank N.A. LOC) P-1 2,430,000
--------------------------------------------------------
7,745,000 Ohio Housing Finance Agency, 3.00% TOBs (Lincoln Park
Associates)/(Comerica Bank LOC), Optional Tender 11/1/93 VMIG1 7,745,000
--------------------------------------------------------
1,000,000 Ohio State Air Quality Development Authority Weekly
VRDNs (Timkin Co.)/(Credit Suisse LOC) A-1+ 1,000,000
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
$3,350,000 Ohio State Air Quality Development Authority, 2.50% CP
(Cincinnati Gas & Electric Co.)/(Morgan Bank (Delaware)
N.A. LOC), Mandatory Tender 11/9/93 A-1+ $ 3,350,000
--------------------------------------------------------
4,700,000 Ohio State Air Quality Development Authority, 2.50% CP
(Cleveland Electric Illuminating Co.)/(FGIC Insured),
Mandatory Tender 11/16/93 A-1+ 4,700,000
--------------------------------------------------------
4,850,000 Ohio State Air Quality Development Authority, 2.70% CP
(Cincinnati Gas & Electric Co.)/(Morgan Bank (Delaware)
N.A. LOC), Mandatory Tender 2/11/94 A-1+ 4,850,000
--------------------------------------------------------
3,000,000 Ohio State Air Quality Development Authority, 2.70% CP
(Cleveland Electric Illuminating Co.)/(Citibank N.A.
LOC)/ (FGIC Insured), Mandatory Tender 1/25/94 A-1 3,000,000
--------------------------------------------------------
4,850,000 Ohio State Air Quality Development Authority, 2.85%
Refunding Bonds Annual TOBs (Ohio Edison Company)/
(Bankers Trust Company LOC), Optional Tender 2/1/94 VMIG1 4,851,181
--------------------------------------------------------
1,615,000 Ohio State IDR Weekly VRDNs (Series 1991)/(Standby
Screw, Inc.)/(BancOhio National Bank LOC)/(Subject to
AMT) A-1+ 1,615,000
--------------------------------------------------------
1,000,000 Ohio State Water PCR Bonds Weekly VRDNs (PPG Industries) P-1 1,000,000
--------------------------------------------------------
800,000 Ohio State Weekly VRDNs (John Carroll University)/(PNC
Bank N.A. LOC) P-1 800,000
--------------------------------------------------------
1,650,000 Orrville, OH, IDA Weekly VRDNs (O.S. Associates)/
(National City Bank LOC)/(Subject to AMT) A-1 1,650,000
--------------------------------------------------------
1,000,000 Pickaway County, OH, IDA Weekly VRDNs (PPG Industries) P-1 1,000,000
--------------------------------------------------------
460,000 Portage County, OH, IDA Weekly VRDNs (D&W
Associates)/(Society Bank N.A. LOC) P-1 460,000
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
$ 455,000 Portage County, OH, IDR, 3.05% TOBs (Neidlinger)/
(Society Bank N.A. LOC)/(Subject to AMT), 3/1/94 P-1 $ 455,000
--------------------------------------------------------
6,230,000 Richland County, OH, 2.96% GO BANs, 9/15/94 NR 6,241,027
--------------------------------------------------------
630,000 Ross County, OH, Airport Improvement Bonds, 3.61% BANs
(Series 1991)/(Subject to AMT), 4/29/94 NR 631,828
--------------------------------------------------------
2,200,000 Salem, OH, City School District, 2.55% BANs, 12/9/93 NR 2,200,110
--------------------------------------------------------
2,500,000 Scioto County, OH, Hospital Authority Weekly VRDNs
(AMBAC Insured) A-1 2,500,000
--------------------------------------------------------
1,175,000 Shaker Heights, OH, 2.50% GO BANs, 5/26/94 NR(2) 1,175,318
--------------------------------------------------------
2,000,000 Sharonville, OH, IDR Weekly VRDNs (Xtek, Inc.)/(Fifth
Third Bank LOC)/(Subject to AMT) VMIG1 2,000,000
--------------------------------------------------------
960,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating, Inc.)/
(Society Bank N.A. LOC) P-1 960,000
--------------------------------------------------------
750,000 Stark County, OH, 3.10% General LT BANs, 12/10/93 MIG1 750,156
--------------------------------------------------------
1,800,000 Stark County, OH, IDR Weekly VRDNs (Sancap
Abrasives)/(Society Bank N.A. LOC) P-1 1,800,000
--------------------------------------------------------
1,031,000 Streetsboro, OH, 3.33% General LT Various Purpose BANs,
12/9/93 NR 1,031,134
--------------------------------------------------------
600,000 Student Loan Funding Corp. of Cincinnati, OH, Weekly
VRDNs (Series 1991A)/(National Westminster Bank PLC
LOC)/(Subject to AMT) VMIG1 600,000
--------------------------------------------------------
3,000,000 Summit County, OH, 2.65% BANs, 3/10/94 P-1 3,000,000
--------------------------------------------------------
1,440,000 Summit County, OH, 3.00% (Matech Machine Tool)/
(Bank One, Akron N.A. LOC), 2/1/94 P-1 1,440,000
--------------------------------------------------------
3,300,000 Summit County, OH, IDR Weekly VRDNs (Maison Aine Limited
Partnership)/(Society Bank N.A. LOC)/
(Subject to AMT) P-1 3,300,000
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
$ 900,000 Summit County, OH, IDR, 2.75% Semi-Annual TOBs
(Beechmer-Boyce)/(Society Bank N.A. LOC), 1/15/94 P-1 $ 900,000
--------------------------------------------------------
1,200,000 Summit County, OH, IDR, 2.88% TOBs (Rogers Industrial
Products, Inc.)/(Bank One, Akron N.A. LOC), 11/1/93 P-1 1,200,000
--------------------------------------------------------
855,000 Summit County, OH, IDR, 3.00% TOBs (Universal Rack &
Equipment Company)/(National City Bank, Cleveland LOC),
3/1/94 P-1 855,000
--------------------------------------------------------
435,000 Summit County, OH, IDR, 3.05% TOBs (Keltec, Inc.)/
(Bank One, Akron N.A. LOC)/(Subject to AMT), 3/1/94 P-1 435,000
--------------------------------------------------------
990,000 Summit County, OH, IDR, 3.10% (S.D. Meyers, Inc.)/
(Bank One, Akron N.A. LOC), 8/15/94 P-1 990,000
--------------------------------------------------------
1,000,000 Toledo--Lucas County Port Authority IDA Weekly VRDNs
(Medusa Corporation)/(Bayerische Vereinsbank Ag LOC)/
(Subject to AMT) AAA 1,000,000
--------------------------------------------------------
1,500,000 Toledo--Lucas County Port Authority, 2.50% CP (CSX
Transportation, Inc.)/(Bank of Nova Scotia LOC),
Mandatory Tender 12/14/93 A-1+ 1,500,000
--------------------------------------------------------
3,200,000 Trumbull County, OH, IDA Weekly VRDNs (Series 1989)/
(McDonald Steel, Inc.)/(PNC Bank N.A., LOC)/(Subject to
AMT) A-1 3,200,000
--------------------------------------------------------
3,400,000 Trumbull County, OH, Weekly VRDNs (Community Skilled
Center of Warren, Ohio)/(Marine Bank N.A., Erie LOC) P-1 3,400,000
--------------------------------------------------------
4,500,000 Westlake, OH, IDR Weekly VRDNs (Kahal Limited
Partnership)/(Society Bank LOC)/(Subject to AMT) P-1 4,500,000
--------------------------------------------------------
2,000,000 Wood County, OH, Weekly VRDNs (Principle Business
Enterprises)/(National City Bank LOC)/(Subject to AMT) P-1 2,000,000
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
$ 890,000 Wyoming, OH, 3.05% BANs, 12/4/93 NR(3) $ 890,117
-------------------------------------------------------- ------------
Total 211,139,188
-------------------------------------------------------- ------------
PUERTO RICO--1.2%
--------------------------------------------------------
2,500,000 Government Development Bank of Puerto Rico Weekly VRDNs
(Credit Suisse and Sumitomo Bank Ltd. LOCs) A-1+ 2,500,000
-------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST) $213,639,188+
-------------------------------------------------------- ------------
</TABLE>
* See Notes to Portfolio of Investments.
+ Also represents cost for federal tax purposes.
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMBAC -- American Municipal Bond Assurance Corporation
AMT -- Alternative Minimum Tax
BANs -- Bond Anticipation Notes
CP -- Commercial Paper
FGIC -- Financial Guaranty Insurance Company
GO -- General Obligation
HFA -- Housing Finance Authority/Agency
IDA -- Industrial Development Authority
IDR -- Industrial Development Revenue
IDRB -- Industrial Development Revenue Bonds
LOC -- Letter of Credit
LOCs -- Letters of Credit
LT -- Limited Tax
PCR -- Pollution Control Revenue
TOBs -- Tender Option Bonds
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
</TABLE>
Note: The categories of investments are shown as a percentage of net assets
($208,765,525) at
October 31, 1993.
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
S&P
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S
Moody's short-term ratings are designated Moody's Investment Grade (MIG or VMIG
(see below)). The purpose of the MIG or VMIG ratings is to provide investors
with a simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
FITCH
Fitch's short-term ratings place greater emphasis on the existence of liquidity
necessary to meet the issuer's obligations in a timely manner.
F-1 Strongest degree of assurance for timely payment. Those issues determined
to provide exceptionally strong credit quality are given a plus (+)
designation.
F-2 Notes reflecting a degree of assurance for timely payment only slightly
less in degree than the highest category.
VARIABLE RATE DEMAND NOTES (VRDNS)
AND
TENDER OPTION BONDS (TOBS) RATINGS
S&P
Standard & Poor's assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-1+, AA/A-1+, and A/A-1. (The
definitions for the long-term and the short-term ratings are provided below.)
- --------------------------------------------------------------------------------
MOODY'S
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity.
In this case, two ratings are usually assigned (for example, Aaa/VMIG-1); the
first representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the second representing an evaluation of
the degree of risk associated with the demand feature. The VMIG rating can be
assigned a 1 or 2 designation using the same definitions described above for the
MIG rating.
FITCH
Fitch usually assigns two ratings to long-term debt issues that include
provisions for a variable rate demand feature. The long-term rating addresses
the ability of the obligor to pay debt service and the short-term rating
addresses the timely payment of the demand feature. Examples of rating
designations are as follows: AAA/F-1+, AA/F-1+, and A/F-1. (The definitions for
the long-term and short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
S&P
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
sign designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1".
MOODY'S
P-1 Issues rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2 Issues rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
The following is an explanation of the Fitch ratings. These ratings are not
referenced in the Portfolio of Investments.
FITCH
F-1 Issues assigned this rating reflect a strong degree of assurance for timely
payment. Those issuers determined to possess the strongest degree of
assurance for timely payment are denoted with a plus (+) sign designation.
- --------------------------------------------------------------------------------
F-2 Issuers carrying this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the "F-1+" and
"F-1" categories.
LONG-TERM DEBT RATINGS
(INVESTMENT GRADE)
S&P
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
principal and interest than debt rated in higher ratings categories.
MOODY'S
AAA Bonds that are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large margin and
principal is secure. While the various protective elements are likely to
change, such changes which can be foreseen are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds that are rated AA are judged to be of high quality by all standards.
Together with the AAA group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in AAA securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in AAA securities.
A Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment some time in the
future.
BAA Bonds which are rated BAA are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
- --------------------------------------------------------------------------------
FITCH
AAA Bonds that are rated AAA are of the highest credit quality. The obligor has
an exceptionally strong ability to pay debt service.
AA Bonds that are rated AA are of very high quality. The obligor has a very
strong ability to pay debt service. Debt rated in this category may also
have a (+) or (-) sign with a rating to indicate the relative position
within the rating category.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
NR indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P, Moody's, or Fitch with respect to short-term
indebtedness. However, management considers them to be of comparable quality
to securities rated in one of the two highest short-term ratings categories
by a nationally recognized statistical rating organization.
NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "'AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by
Fitch.
NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch.
NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "A" by Standard & Poor's, Moody's, or Fitch.
NR(4) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by
Fitch.
OHIO MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $213,639,188
- --------------------------------------------------------------------------------
Cash 239,476
- --------------------------------------------------------------------------------
Interest receivable 1,354,633
- --------------------------------------------------------------------------------
Deferred expenses (Note 2E) 36,258
- -------------------------------------------------------------------------------- ------------
Total assets 215,269,555
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased $6,241,027
- -------------------------------------------------------------------
Dividends payable 156,809
- -------------------------------------------------------------------
Accrued expenses and other liabilities 106,194
- ------------------------------------------------------------------- ----------
Total liabilities 6,504,030
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 208,765,525 shares of beneficial interest outstanding $208,765,525
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- --------------------------------------------------------------------------------
Institutional Shares ($81,748,179 / 81,748,179 shares of beneficial interest
outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
Cash II Shares ($127,017,346 / 127,017,346 shares of beneficial interest
outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------
Interest income (Note 2B) $5,659,405
- ----------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------
Investment advisory fee (Note 5) $ 813,048
- ---------------------------------------------------------------------
Administrative personnel and services (Note 5) 325,056
- ---------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 112,854
- ---------------------------------------------------------------------
Trustees' fees 4,273
- ---------------------------------------------------------------------
Auditing fees 15,942
- ---------------------------------------------------------------------
Legal fees 11,605
- ---------------------------------------------------------------------
Printing and postage 13,392
- ---------------------------------------------------------------------
Fund share registration costs 36,941
- ---------------------------------------------------------------------
Distribution services fees (Note 5) 404,917
- ---------------------------------------------------------------------
Insurance premiums 17,775
- ---------------------------------------------------------------------
Miscellaneous 12,562
- --------------------------------------------------------------------- ----------
Total expenses 1,768,365
- ---------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 5) 392,961
- --------------------------------------------------------------------- ----------
Net expenses 1,375,404
- ---------------------------------------------------------------------------------- ----------
Net investment income $4,284,001
- ---------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1993 1992
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 4,284,001 5,045,914
- -------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- --------------------------------------------------------------
Dividends to shareholders from net investment income:
- --------------------------------------------------------------
Institutional Shares (1,570,539) (2,231,320)
- --------------------------------------------------------------
Cash II Shares (2,713,462) (2,814,594)
- -------------------------------------------------------------- ------------- -------------
Change in net assets from distributions to shareholders (4,284,001) (5,045,914)
- -------------------------------------------------------------- ------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- --------------------------------------------------------------
Proceeds from sale of shares 647,552,523 501,839,900
- --------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 2,703,916 3,069,194
- --------------------------------------------------------------
Cost of shares redeemed (649,710,289) (435,542,255)
- -------------------------------------------------------------- ------------- -------------
Change in net assets from Fund share transactions 546,150 69,366,839
- -------------------------------------------------------------- ------------- -------------
Change in net assets 546,150 69,366,839
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 208,219,375 138,852,536
- -------------------------------------------------------------- ------------- -------------
End of period $ 208,765,525 $ 208,219,375
- -------------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company
with several portfolios. The financial statements included herein are only those
of Ohio Municipal Cash Trust (the "Fund"). The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.
The Fund provides two classes of shares ("Institutional Shares" and "Cash II
Shares"). Cash II Shares are identical in all respects to Institutional Shares
except that Cash II Shares are sold pursuant to a distribution plan ("Plan")
adopted in accordance with Investment Company Act Rule 12b-1.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that
the best method currently available for valuing portfolio securities is
amortized cost. The Fund's use of the amortized cost method to value its
portfolio securities is conditioned on its compliance with Rule 2a-7 under
the Investment Company Act of 1940.
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state, than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such
factors, at October 31, 1993, 72.5% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The
aggregate percentages by financial institution ranged from 0.4% to 11.2% of
total investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest earned net of premium, and original issue discount as
required by the Internal Revenue Code (the "Code").
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code applicable to investment companies and to distribute to
shareholders each year all of its net income. Accordingly, no provision for
federal tax is necessary. Dividends paid by the Fund representing net
interest received on tax-exempt municipal securities are not includable by
shareholders as gross income for federal income tax purposes because the Fund
intends to meet certain requirements of the Code applicable to regulated
investment companies which will enable the Fund to pay exempt-interest
dividends. The portion of such interest, if any, earned on private activity
bonds issued after August 7, 1986 may be considered a tax preference item to
shareholders for the purpose of computing the alternative minimum tax.
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Fund engages
in such transactions, it will do so for the purpose of acquiring portfolio
securities consistent with its investment objectives and policies and not for
the purpose of investment leverage. The Fund will record a when-issued
security and the related liability on the trade date. Until the securities
are received and paid for, the Fund will maintain security positions such
that sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being amortized
using the straight-line method through April 1996.
F. EXPENSES--Expenses of the Fund (other than distribution services fees) and
waivers and reimbursements, if any, are allocated to each class of shares
based on its relative daily average net assets for the period. Expenses
incurred by the Trust which do not specifically relate to an individual Fund
are allocated among all Funds based on a Fund's relative net asset value size
or as deemed appropriate by the administrator.
G. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) DIVIDENDS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash, or in additional
shares at the net asset value on the payable date.
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1993, capital paid-in aggregated $208,765,525.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
1993 1992
------------ ------------
<S> <C> <C>
INSTITUTIONAL SHARES
- ----------------------------------------------------------------
Shares outstanding, beginning of period 74,342,130 44,771,476
- ----------------------------------------------------------------
Shares sold 222,190,842 213,513,139
- ----------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 60,099 286,483
- ----------------------------------------------------------------
Shares redeemed (214,844,892) (184,228,968)
- ---------------------------------------------------------------- ------------ ------------
Shares outstanding, end of period 81,748,179 74,342,130
- ---------------------------------------------------------------- ------------ ------------
CASH II SHARES
- ----------------------------------------------------------------
Shares outstanding, beginning of period 133,877,245 94,081,060
- ----------------------------------------------------------------
Shares sold 425,361,681 288,326,761
- ----------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 2,643,817 2,782,711
- ----------------------------------------------------------------
Shares redeemed (434,865,397) (251,313,287)
- ---------------------------------------------------------------- ------------ ------------
Shares outstanding, end of period 127,017,346 133,877,245
- ---------------------------------------------------------------- ------------ ------------
</TABLE>
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Management, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to .40 of 1% of the Fund's
average daily net assets. The Adviser has voluntarily agreed to waive a portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time in its sole discretion. During the fiscal year ended October 31, 1993 the
Adviser earned $813,048 of which $392,961 was voluntarily waived.
Organizational expenses ($37,324) and start-up administrative services expenses
($40,612) were borne initially by the Adviser. The Fund has agreed to pay the
Adviser, at an annual rate of .005 of 1% of average daily net assets and .01 of
1% of average daily net assets for organization expenses and start-up
administrative expenses, respectively, until the expenses borne initially by the
Adviser are reimbursed, or the expiration of five years from April 24, 1991, the
date the Trust's portfolio became effective, whichever occurs earlier. During
the fiscal year ended October 31, 1993, the Fund paid Adviser $10,106 and
$20,211, respectively, pursuant to this agreement.
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
During the fiscal year ended October 31, 1993, the Fund engaged in purchase and
sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7
of the Investment Company Act of 1940 amounting to $231,225,000 and
$257,985,000, respectively. These purchases and sales were conducted on an
arms-length basis insofar as they were transacted for cash consideration only,
at independent current market prices and without brokerage commission, fee or
other remuneration.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Trust will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the assets of the
Fund, for fees it paid which relate to the distribution and administration of
the Fund's Cash II Shares. The Plan provides that the Fund may incur
distribution expenses up to .30 of 1% of the average daily net assets of the
Cash II Shares, annually, to pay commissions, maintenance fees and to compensate
the distributor. During the fiscal year ended October 31, 1993, FSC earned
$404,917 in distribution services fees, none of which was voluntarily waived.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Certain Officers and Trustees of the
Trust are Officers and Directors of the above corporations.
(6) CURRENT CREDIT RATINGS
Current credit ratings and related notes are unaudited.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST (Ohio Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of Ohio
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio investments,
as of October 31, 1993, the related statement of operations for the year then
ended, and the statement of changes in net assets, and the financial highlights
(see pages 2 and 18 of the prospectus) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1993, by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Ohio
Municipal Cash Trust, an investment portfolio of Federated Municipal Trust, as
of October 31, 1993, the results of its operations for the year then ended, and
the changes in its net assets and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania
December 13, 1993
42
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Ohio Municipal Cash Trust
Cash II Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts 02266-8604
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
CASH II SHARES
PROSPECTUS
A Non-Diversified Portfolio of
Federated Municipal Trust, an Open-End
Management Investment Company
December 31, 1993
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
1030105A-CII (12/93)
OHIO MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Ohio Municipal Cash Trust (the "Fund") offered by
this prospectus represent interests in a non-diversified portfolio of securities
which is one of a series of investment portfolios in Federated Municipal Trust
(the "Trust"), an open-end management investment company (a mutual fund). The
investment objective of the Fund is to provide current income exempt from
federal regular income tax and the personal income taxes imposed by the State of
Ohio and Ohio municipalities consistent with stability of principal. The Fund
invests primarily in short-term Ohio municipal securities, including securities
of states, territories, and possessions of the United States, which are not
issued by or on behalf of Ohio or its political subdivisions and financing
authorities, which are exempt from the federal regular and Ohio state income
tax. Institutional Shares are sold at net asset value, without a sales load.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THE INSTITUTIONAL SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in Institutional Shares. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for Cash
II Shares and Institutional Shares dated December 31, 1993, with the Securities
and Exchange Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference in this prospectus. You may
request a copy of the Combined Statement of Additional Information free of
charge by calling 1-800-235-4669. To obtain other information or to make
inquiries about the Fund, contact the Fund at the address listed in the back of
this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 31, 1993
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Variable Rate Demand Notes 4
Participation Interests 4
Municipal Leases 4
Ratings 4
Credit Enhancement 5
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed
Delivery Transactions 5
Temporary Investments 5
Ohio Municipal Securities 6
Standby Commitments 6
Ohio Investment Risks 6
Non-Diversification 7
Investment Limitations 7
Regulatory Compliance 7
FEDERATED MUNICIPAL TRUST INFORMATION 8
- ------------------------------------------------------
Management of Federated Municipal Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Institutional Shares 9
Administration of the Fund 9
Administrative Services 9
Custodian 9
Transfer Agent and
Dividend Disbursing Agent 9
Legal Counsel 9
Independent Public Accountants 9
NET ASSET VALUE 9
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 9
- ------------------------------------------------------
Share Purchases 9
By Wire 9
By Mail 10
Minimum Investment Required 10
What Shares Cost 10
Subaccounting Services 10
Certificates and Confirmations 10
Dividends 11
Capital Gains 11
REDEEMING INSTITUTIONAL SHARES 11
- ------------------------------------------------------
Telephone Redemption 11
Written Requests 11
Signatures 12
Receiving Payment 12
Redemption Before Purchase
Instruments Clear 12
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 12
- ------------------------------------------------------
Voting Rights 12
Massachusetts Partnership Law 13
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
Ohio Tax Considerations 14
Other State and Local Taxes 15
PERFORMANCE INFORMATION 15
- ------------------------------------------------------
OTHER CLASSES OF SHARES 16
- ------------------------------------------------------
Financial Highlights--Cash II Shares 17
FINANCIAL STATEMENTS 18
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 39
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............. None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering
price)................................................................................ None
Deferred Sales Load (as a percentage of original purchase price or redemption proceeds,
as applicable)........................................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)...................... None
Exchange Fee............................................................................ None
ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)........................................................ 0.28%
12b-1 Fee............................................................................... None
Other Expenses.......................................................................... 0.27%
Total Institutional Shares Operating Expenses(2).................................... 0.55%
</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 Total Institutional Shares Operating Expenses in the table above are
based on expenses expected during the fiscal year ending October 31, 1994. The
Total Institutional Shares Operating Expenses were 0.48% for the fiscal year
ended October 31, 1993, and were 0.67% absent the voluntary waiver of a portion
of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SHARES OF THE
FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF
THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SHARES" AND
"FEDERATED MUNICIPAL TRUST INFORMATION." Wire-transferred redemptions of less
than $5,000 may be subject to additional fees.
<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. As noted in
the table above, the Fund charges no redemption fee for
Institutional Shares.................................... $6 $18 $31 $69
</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.
The information set forth in the foregoing table and example relates only to
Institutional Shares of the Fund. The Fund also offers another class of shares
called Cash II Shares. Institutional Shares and Cash II Shares are subject to
certain of the same expenses; however, Cash II Shares are subject to a
12b-1 fee of 0.30%. See "Other Classes of Shares."
OHIO MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 39.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------
1993 1992 1991*
-------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00
- -----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------
Net investment income 0.02 0.03 0.02
- ----------------------------------------------------------------- ------- ------- -------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.03) (0.02)
- ----------------------------------------------------------------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00
- ----------------------------------------------------------------- ------- ------- -------
TOTAL RETURN** 2.33% 3.21% 2.40%(a)
- -----------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------
Expenses 0.48% 0.46% 0.35%(b)
- -----------------------------------------------------------------
Net investment income 2.30% 3.10% 4.46%(b)
- -----------------------------------------------------------------
Expense waiver/reimbursement (c) 0.19% 0.25% 0.32%(b)
- -----------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------
Net assets, end of period (000 omitted) $81,748 $74,342 $44,771
- -----------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 22, 1991 (date of initial
public investment) to October 31, 1991.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Trustees ("Trustees") have established two classes of
shares, known as Institutional Shares and Cash II Shares. This prospectus
relates only to Institutional Shares of the Fund.
Institutional Shares ("Shares") of the Fund are designed for the investment of
monies held by financial institutions in a fiduciary or agency capacity. A
minimum initial investment of $25,000 over a 90-day period is required. The Fund
may not be a suitable investment for non-Ohio taxpayers or retirement plans
since it invests primarily in Ohio municipal securities.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal regular income tax and the personal income taxes imposed by the State of
Ohio and Ohio municipalities consistent with stability of principal. The
investment objective cannot be changed without approval of shareholders. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than Ohio.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of Ohio municipal securities with remaining maturities of 13 months or less at
the time of purchase by the Fund. As a matter of investment policy, which cannot
be changed without approval of shareholders, the Fund invests its assets so that
at least 80% of its annual interest income is exempt from federal regular and
Ohio state income taxes. The average maturity of the securities in the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless
indicated otherwise, the investment policies may be changed by the Trustees
without the approval of shareholders. Shareholders will be notified before any
material changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by
or on behalf of Ohio and its political subdivisions and financing authorities,
and obligations of other states, territories and possessions of the United
States, including the District of Columbia, and any political subdivision or
financing authority of any of these, the income from which is, in the opinion of
qualified legal
counsel, exempt from both federal regular income tax and Ohio state income tax
imposed upon non-corporate taxpayers. Examples of Ohio municipal securities
include, but are not limited to:
- tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
- bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
- municipal commercial paper and other short-term notes;
- variable rate demand notes;
- municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
- participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
municipal securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
municipal interest index or a stated percentage of a prime rate or another
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days' prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS. The Fund may purchase interests in municipal
securities from financial institutions such as commercial and investment
banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying municipal securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and may be considered to be illiquid. They may take the form
of a lease, an installment purchase contract, a conditional sales contract,
or a participation certificate on any of the above.
RATINGS. The Ohio municipal securities in which the Fund invests must either be
rated in one of the two highest short-term rating categories by one or more
nationally recognized statistical rating organizations ("NRSROs") or be of
comparable quality to securities having such ratings. An NRSRO's two highest
rating categories are determined without regard for sub-categories and
gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc.
("Moody's"), or FIN-1+, FIN-1 and FIN-2 by Fitch Investors
Service, Inc. ("Fitch") are all considered rated in one of the two highest
short-term rating categories. The Fund will follow applicable regulations in
determining whether a security rated by more than one NRSRO can be treated as
being in one of the two highest short-term rating categories; currently, such
securities must be rated by two NRSROs in one of their two highest categories.
See "Regulatory Compliance."
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit-enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit-enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
The Fund may have more than 25% of its total assets invested in securities
credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Trustees, certain restricted securities are considered
liquid. To the extent restricted securities are deemed to be illiquid, the Fund
will limit their purchases, together with other securities considered to be
illiquid, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Ohio
municipal securities on a when-issued or delayed delivery basis. In when-issued
and delayed delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term non-Ohio municipal
tax-exempt obligations or other taxable temporary investments. All temporary
investments will satisfy the same credit quality standards as the Fund's
acceptable investments. See "Ratings" above. Temporary investments include:
notes issued by or on behalf of municipal or corporate issuers; marketable
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; and repurchase agreements (arrangements in which banks,
broker/dealers, and other recognized financial
institutions sell the Fund a temporary investment and agree to repurchase it at
a mutually agreed upon time and price).
Although the Fund is permitted to make taxable temporary investments, there is
no current intention of generating income subject to federal regular or Ohio
state income taxes.
OHIO MUNICIPAL SECURITIES
Ohio municipal securities are generally issued to finance public works, such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities.
Ohio municipal securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS
Some securities dealers are willing to sell municipal securities to the Fund
accompanied by their commitments to repurchase the municipal securities prior to
maturity, at the Fund's option, for the amortized cost of the municipal
securities at the time of repurchase. These arrangements are not used to protect
against changes in the market value of municipal securities. They permit the
Fund, however, to remain fully invested and still provide liquidity to satisfy
redemptions. The cost of municipal securities accompanied by these "standby"
commitments could be greater than the cost of municipal securities without such
commitments. Standby commitments are not marketable or otherwise assignable and
have value only to the Fund. The default or bankruptcy of a securities dealer
giving such a commitment would not affect the quality of the municipal
securities purchased. However, without a standby commitment, these securities
could be more difficult to sell. The Fund enters into standby commitments only
with those dealers whose credit the investment adviser believes to be of high
quality. The Fund will only enter into standby commitments if there will be no
adverse effect on the exemption of distributions from Ohio state income taxes.
OHIO INVESTMENT RISKS
Yields on Ohio municipal securities depend on a variety of factors, including:
the general conditions of the short-term municipal note market and the municipal
bond market; the size and maturity of the particular offering; the maturity of
the obligations; and the rating of the issue. Further, any adverse economic
conditions or developments affecting the State of Ohio or its municipalities
could impact the
Fund's portfolio. The ability of the Fund to achieve its investment objective
also depends on the continuing ability of the issuers of Ohio municipal
securities and demand features for such securities, or the credit enhancers of
either, to meet their obligations for the payment of interest and principal
when due.
Investing in Ohio municipal securities which meet the Fund's quality standards
may not be possible if the State of Ohio or its municipalities do not maintain
their high quality, short-term current credit ratings. In addition, certain Ohio
constitutional amendments, legislative measures, executive orders,
administrative regulations, and voter initiatives could result in adverse
consequences affecting Ohio municipal securities. An expanded discussion of the
current economic risks associated with the purchase of Ohio municipal securities
is contained in the Combined Statement of Additional Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified investment portfolio because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, with
regard to at least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 15% of the value of total assets to secure such
borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following limitations, however, can be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
The Fund will not invest more than 5% of its total assets in industrial
development bonds or other municipal securities when the payment of principal
and interest is the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations, including the
operation of any predecessor.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Combined Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. In particular,
the Fund will
comply with the various requirements of Rule 2a-7, which regulates money market
mutual funds. The Fund will determine the effective maturity of its investments,
as well as its ability to consider a security as having received the requisite
short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without the
approval of its shareholders.
FEDERATED MUNICIPAL TRUST INFORMATION
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MANAGEMENT OF FEDERATED MUNICIPAL TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of
Trustees is responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for the voluntary waiver of the advisory
fee by the adviser, the adviser may voluntarily waive some or all of the
advisory fee. This does not include reimbursement to the Fund of any
expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The adviser can terminate this voluntary
reimbursement of expenses at any time at its sole discretion. The adviser
has also undertaken to reimburse the Fund for operating expenses in excess
of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional Shares
of the Fund. It is a Pennsylvania corporation organized on November 14, 1969,
and is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary
of Federated Investors, provides the Fund with the administrative personnel and
services necessary to operate the Fund and the separate classes. Such services
include shareholder servicing and certain legal and accounting services.
Federated Administrative Services, Inc. provides these at approximate cost.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
NET ASSET VALUE
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The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per Share is determined by adding the interest of the Shares in the value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding.
The Fund, of course, cannot guarantee that its net asset value will always
remain at $1.00 per Share.
INVESTING IN INSTITUTIONAL SHARES
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SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open for business. Shares may be purchased either by
wire or by mail. The Fund reserves the right to reject any purchase request. To
purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) that same day. Federal funds should be wired as follows: State Street Bank
and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
Ohio
Municipal Cash Trust--Institutional Shares; Fund Number (this number can be
found on the account statement or by contacting the Fund); Group Number or Order
Number; Nominee or Institution Name; ABA Number 011000028. Shares cannot be
purchased by wire on days on which the New York Stock Exchange is closed and on
federal holidays restricting wire transfers.
BY MAIL. To purchase Shares by mail, send a check made payable to Ohio Municipal
Cash Trust-- Institutional Shares to the Trust's transfer agent, Federated
Services Company, c/o State Street Bank and Trust Company, P.O. Box 8602,
Boston, Massachusetts 02266-8602. Orders by mail are considered received when
payment by check is converted by State Street Bank into federal funds. This is
normally the next business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Shares is $25,000. However, an account may
be opened with a smaller amount as long as the $25,000 minimum is reached within
90 days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund. Individual accounts
established through a bank or broker may be subject to a different minimum
investment requirement.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a bank or broker may be charged an additional service fee by that
bank or broker.
The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; or (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Financial
institutions holding Shares in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the financial institution with regard to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the day after the check is converted, upon
instruction of the transfer agent, into federal funds. Dividends are
automatically reinvested on payment dates in additional Shares unless cash
payments are requested on an application or by contacting the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses,
if any, could result in a decrease in dividends. If, for some extraordinary
reason, the Fund realizes net long-term or short-term capital gains, it will
distribute them at least once every 12 months.
REDEEMING INSTITUTIONAL SHARES
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The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund. Redemption
requests received before 12:00 noon (Eastern time) are not entitled to that
day's dividend. A daily dividend will be paid on Shares redeemed if the
redemption request is received after 12:00 noon (Eastern time). However, the
proceeds are not wired until the following business day. If, at any time, the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders will be promptly notified.
An authorization form permitting the Fund to accept redemption requests by
telephone must first be completed. Authorization forms and information on this
service are available from Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, shareholders may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as Written Requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name and class of shares,
his account number, and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request provided that the transfer agent has received payment
for the Shares from the shareholder.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, the proceeds from the redemption of those
Shares are not available, and the Shares may not be exchanged, until the Fund or
its agents are reasonably certain that the purchase check has cleared, which
could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
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VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of all series of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for such
acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument that the
Trust or its Trustees enter into or sign.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
TAX INFORMATION
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FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental
purpose municipal bonds, which finance roads, schools, libraries, prisons and
other public facilities, private activity bonds provide benefits to private
parties. The Fund may purchase all types of municipal bonds, including private
activity bonds. Thus, should it purchase any such bonds, a portion of the Fund's
dividends may be treated as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, 75% of the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
OHIO TAX CONSIDERATIONS
Under existing Ohio laws, distributions made by the Fund will not be subject to
Ohio individual income tax if such distributions qualify as "exempt-interest
dividends" under the Internal Revenue Code, and represent (i) interest from
obligations of Ohio or its subdivisions which is exempt from federal income tax;
or (ii) interest or dividends from obligations issued by the United States and
its territories or possessions or by any authority, commission or
instrumentality of the United States which are exempt from state income tax
under federal laws. Conversely, to the extent that distributions made by the
Fund are derived from other types of obligations, such dividends will not be
exempt from Ohio individual income tax.
Distributions made by the Fund will not be subject to Ohio corporation franchise
tax if such distributions qualify as "exempt-interest dividends" under the Code,
and represent (i) interest from obligations of Ohio or its subdivisions which is
exempt from federal income tax; or (ii) net interest income from obligations
issued by the United States and its territories or possessions or by any
authority, commission or instrumentality of the United States which is included
in federal taxable income and which is exempt from state income tax under
federal laws.
Exempt-interest dividends that represent interest from obligations held by the
Fund which are issued by the State of Ohio or its political subdivisions will be
exempt from any Ohio municipal income tax (even if the municipality is permitted
under Ohio law to levy a tax on intangible income).
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from regular state income taxes in
states other than Ohio or from personal property taxes. State laws differ on
this issue and shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
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From time to time the Fund advertises its yield, effective yield, and
tax-equivalent yield for Institutional Shares.
The yield of Institutional Shares represents the annualized rate of income
earned on an investment in Institutional Shares over a seven-day period. It is
the annualized dividends earned during the period on the investment, shown as a
percentage of the investment. The effective yield is calculated similarly to the
yield, but, when annualized, the income earned by an investment in Institutional
Shares is assumed to be reinvested daily. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield of Institutional Shares is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that the
Institutional Shares would have had to earn to equal their actual yield,
assuming a specific tax rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Institutional Shares after reinvesting all income
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
Yield, effective yield, and tax-equivalent yield will be calculated separately
for Institutional Shares and Cash II Shares. Because the Cash II Shares are
subject to 12b-1 fees, the yield, the effective yield and the tax-equivalent
yield for Institutional Shares will exceed the yield, the effective yield, and
the tax-equivalent yield for Cash II Shares for the same period.
From time to time, the Fund may advertise the performance of Institutional
Shares using certain reporting services and/or compare the performance of
Institutional Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Cash II Shares are sold primarily to retail customers of financial institutions.
Cash II Shares are sold at net asset value. Investments in Cash II Shares are
subject to a minimum initial investment of $25,000.
Cash II Shares are distributed pursuant to a 12b-1 Plan adopted by the Trust
whereby the distributor is paid a fee of .30 of 1% of the Cash II Shares'
average daily net assets.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares of the Fund
than from another class of shares. While the distributor may, in addition to
fees paid pursuant to the 12b-1 Plan, pay an administrative fee to a financial
institution or broker for administrative services provided to a class, such a
fee will not be an expense of the class, but will be reimbursed to the
distributor by the investment adviser.
The amount of dividends payable to Institutional Shares will exceed that of Cash
II Shares by the difference between class expenses and distribution expenses
borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
16
OHIO MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--CASH II SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 39.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1993 1992 1991*
-------- -------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00
- ------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------
Net investment income 0.02 0.03 0.02
- ------------------------------------------------------------------ -------- -------- -------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.03) (0.02)
- ------------------------------------------------------------------ -------- -------- -------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00
- ------------------------------------------------------------------ -------- -------- -------
TOTAL RETURN** 2.02% 2.90% 2.27%(a)
- ------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------
Expenses 0.78% 0.76% 0.63%(b)
- ------------------------------------------------------------------
Net investment income 2.01% 2.86% 4.18%(b)
- ------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.19% 0.25% 0.34%(b)
- ------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------
Net assets, end of period (000 omitted) $127,017 $133,877 $94,081
- ------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 22, 1991 (date of initial
public investment) to October 31, 1991.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENT
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--102.3%
- ----------------------------------------------------------------------
OHIO--101.1%
--------------------------------------------------------
$ 500,000 Allen County, OH, IDR Weekly VRDNs (Nickles Bakery of
Ohio, Inc.)/(Society Bank N.A. LOC)/(Subject to AMT) P-1 $ 500,000
--------------------------------------------------------
3,000,000 Cincinnati, OH, Building Acquisition, 2.93% GO UT BANs,
6/1/94 NR(2) 3,002,197
--------------------------------------------------------
1,900,000 Cincinnati, OH, Student Loan Authority Weekly VRDNs
(Cincinnati Student Loan Funding Corp.)/(National
Westminster Bank PLC LOC)/(Subject to AMT) VMIG1 1,900,000
--------------------------------------------------------
1,175,000 Cincinnati, OH, Student Loan Funding Corp. Weekly VRDNs
(Series 1988B-1)/(Student Loan Funding Corp.)/ (Sumitomo
Bank Ltd. LOC)/(Subject to AMT) VMIG1 1,175,000
--------------------------------------------------------
5,375,000 Cincinnati, OH, Student Loan Revenue Bonds, 2.90% Annual
TOBs (Series 1987A)/(Cincinnati Student Loan Funding
Corp.)/(Fuji Bank Ltd. LOC)/(Subject to AMT), Mandatory
Tender 7/1/94 VMIG1 5,375,000
--------------------------------------------------------
4,000,000 Cincinnati--Hamilton County Port Authority Weekly VRDNs
(4th Street Limited Partnership)/(PNC Bank, Kentucky
LOC) P-1 4,000,000
--------------------------------------------------------
2,675,000 Cincinnati--Hamilton County Port Authority, 2.95% Annual
TOBs (Series 8)/(Bethesda One Limited Partnership)/(Bank
One, Columbus, N.A. LOC), Optional Tender 8/1/94 P-1 2,675,000
--------------------------------------------------------
9,000,000 Cleveland, OH, Gateway Economic Development Corp. Weekly
VRDNs (Gateway Stadium Authority)/(Fuji Bank Ltd.
LOC)/(Subject to AMT) A-1 9,000,000
--------------------------------------------------------
400,000 Cleveland, OH, IDA Weekly VRDNs (Garland Company)/
(Society Bank N.A. LOC) P-1 400,000
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
$2,000,000 Clinton County, OH, Hospital Authority Weekly VRDNs
(Clinton Memorial Hospital)/(BancOhio National Bank LOC) P-1 $ 2,000,000
--------------------------------------------------------
1,100,000 Columbus, OH, Sewer System Revenue Bonds Weekly VRDNs
(Series B)/(Sanwa Bank, Ltd. LOC) A-1+ 1,100,000
--------------------------------------------------------
1,295,000 Crawford County, OH, IDA, 2.95% TOBs (United
Photographic, Inc.)/(Bank One, Columbus N.A. LOC),
3/1/94 P-1 1,295,000
--------------------------------------------------------
1,000,000 Cuyahoga County, OH, IDA Weekly VRDNs (Animal Protection
League)/(Society Bank N.A. LOC) P-1 1,000,000
--------------------------------------------------------
765,000 Cuyahoga County, OH, IDA Weekly VRDNs (Parma-Commerce
Parkway-West)/(Society Bank N.A. LOC) P-1 765,000
--------------------------------------------------------
1,500,000 Cuyahoga County, OH, IDA Weekly VRDNs (Premier
Manufacturing)/(First National Bank, Louisville LOC)/
(Subject to AMT) P-1 1,500,000
--------------------------------------------------------
2,100,000 Cuyahoga County, OH, IDR Weekly VRDNs (East Park
Retirement Community, Inc.)/(Society Bank N.A. LOC)/
(Subject to AMT) P-1 2,100,000
--------------------------------------------------------
885,000 Cuyahoga County, OH, IDR Weekly VRDNs (Interstate Diesel
Service, Inc.)/(Huntington National Bank LOC)/ (Subject
to AMT) P-1 885,000
--------------------------------------------------------
500,000 Cuyahoga County, OH, Weekly VRDNs (Landerhaven Country
Club Estates Ltd.)/(Society Bank N.A. LOC) P-1 500,000
--------------------------------------------------------
3,470,000 Cuyahoga Falls, OH, 2.82% BANs, 3/9/94 NR(3) 3,472,034
--------------------------------------------------------
1,275,000 Cuyahoga Falls, OH, 2.87% BANs, 1/21/94 NR(3) 1,275,466
--------------------------------------------------------
5,000,000 Dayton, OH, Revenue Refunding Bonds Weekly VRDNs (Series
1993E)/(Emery Air Freight Corp.)/(Mellon Bank N.A. LOC) VMIG1 5,000,000
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
$1,000,000 Elyria, OH, 2.82% LT GO BANs, 4/7/94 NR(3) $ 1,000,499
--------------------------------------------------------
1,640,000 Euclid, OH, 2.93% GO BANs, 9/29/94 NR(2) 1,641,880
--------------------------------------------------------
725,000 Fairfield County, OH, 3.32% Sewer Improvement Bonds,
11/19/93 NR 725,146
--------------------------------------------------------
2,415,000 Fairfield County, OH, 3.15% BANs, 10/28/94 NR 2,423,121
--------------------------------------------------------
1,459,672 Fayetteville-Perry, OH, Local School District, 2.93%
BANs, 6/10/94 NR 1,461,648
--------------------------------------------------------
3,345,000 Franklin County, OH, IDA Weekly VRDNs (Unicorn Leasing
Co.)/(Fifth Third Bank LOC)/(Subject to AMT) P-1 3,345,000
--------------------------------------------------------
4,500,000 Franklin County, OH, IDR Weekly VRDNs (Heekin Can,
Inc.)/(PNC Bank N.A. LOC) P-1 4,500,000
--------------------------------------------------------
2,000,000 Franklin County, OH, IDRB Weekly VRDNs (Tigerpoly
Manufacturing, Inc.)/(Mitsubishi Bank Ltd. LOC)/(Subject
to AMT) P-1 2,000,000
--------------------------------------------------------
7,800,000 Franklin County, OH, Weekly VRDNs (Series 1992)/
(Rickenbacker Holdings, Inc.)/(Bank One, Columbus N.A.
LOC) P-1 7,800,000
--------------------------------------------------------
2,000,000 Hamilton County, OH, 2.45% Metropolital Sewer System
Improvement and Revenue BANs (Series A), 12/1/93 NR(3) 2,000,000
--------------------------------------------------------
3,500,000 Hamilton County, OH, 2.74%, 11/10/93 NR(3) 3,500,034
--------------------------------------------------------
2,500,000 Hamilton County, OH, Hospital Authority Revenue Bonds
Weekly VRDNs (Series 1986A)/(Good Samaritan Hospital) A-1 2,500,000
--------------------------------------------------------
3,000,000 Hamilton County, OH, Sewer System Improvement and
Revenue Bonds Weekly VRDNs (P-FLOATS)/(FGIC Insured) VMIG1 3,000,000
--------------------------------------------------------
2,500,000 Hamilton, OH, 2.82% LT GO BANs, 6/17/94 NR(3) 2,500,298
--------------------------------------------------------
1,300,000 Hamilton, OH, 2.96%, 9/2/94 NR(3) 1,300,414
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
$1,210,000 Hilliard, OH, 2.94% BANs, 4/15/94 NR(3) $ 1,211,278
--------------------------------------------------------
760,000 Hillsboro, OH, IDR Weekly VRDNs (Series 1987)/(TD
Manufacturing Ltd.)/(Sanwa Bank Ltd. LOC)/(Subject to
AMT) VMIG1 760,000
--------------------------------------------------------
2,000,000 Holmes County, OH, IDA Weekly VRDNs (Poultry Processing,
Inc.)/(Rabobank Nederland LOC)/(Subject to AMT) A-1+ 2,000,000
--------------------------------------------------------
400,000 Kettering, OH, IDA Weekly VRDNs (Center-Plex Venture,
Inc.)/(Society Bank N.A. LOC) P-1 400,000
--------------------------------------------------------
1,000,000 Lake County, OH, 2.80% LT BANs, 11/9/93 NR(2) 1,000,064
--------------------------------------------------------
1,735,000 Lake County, OH, 2.93% BANs, 10/13/94 NR(2) 1,737,072
--------------------------------------------------------
355,000 Lucas County, OH, Health Care Improvement Weekly VRDNs
(Sunshine Children's Home)/(National City Bank,
Cleveland LOC) P-1 355,000
--------------------------------------------------------
2,150,000 Lucas County, OH, Hospital Facility Improvement Revenue
Bonds Weekly VRDNs (Series 93)/(Lott Industries, Inc.)/
(National City Bank LOC) P-1 2,150,000
--------------------------------------------------------
2,400,000 Lucas County, OH, IDA Weekly VRDNs (Kuhlman Corp.)/
(Society Bank N.A. LOC) P-1 2,400,000
--------------------------------------------------------
3,000,000 Lucas County, OH, Various Purpose Improvement Notes,
3.87% BANs (Series 1993-1), 8/18/94 NR(4) 3,008,509
--------------------------------------------------------
1,500,000 Mahoning County, OH, IDR Weekly VRDNs (Tru-Cut Die
Corp.)/(PNC Bank, Ohio N.A. LOC)/(Subject to AMT) P-1 1,500,000
--------------------------------------------------------
3,025,000 Mahoning County, OH, Multifamily HFA Weekly VRDNs
(International Towers Inc.)/(Marine Bank, Warren LOC)/
(Subject to AMT) A-1 3,025,000
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
$1,660,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal
Products, Inc.)/(Bank One, Indianapolis LOC)/(Subject to
AMT) P-1 $ 1,660,000
--------------------------------------------------------
1,000,000 Massillon, OH, 3.13% BANs, 10/5/94 NR(3) 1,003,872
--------------------------------------------------------
700,000 Medina County, OH, IDA Weekly VRDNs (National Metal
Abrasive, Inc.)/(Society Bank N.A. LOC) P-1 700,000
--------------------------------------------------------
520,000 Medina County, OH, IDR, 3.05% TOBs (Bopco Associates)/
(Bank One, Akron N.A. LOC)/(Subject to AMT), 3/1/94 NR 520,000
--------------------------------------------------------
750,000 Middleburg Heights, OH, 2.83% BANs 6/2/94 NR(2) 750,980
--------------------------------------------------------
3,800,000 Montgomery County, OH, IDA Weekly VRDNs (Series
1992)/(Badger Paper Mills, Inc.)/(Central Trust Co. N.A.
LOC)/(Subject to AMT) P-1 3,800,000
--------------------------------------------------------
1,000,000 Moraine, OH, 2.50% BANs, 11/17/93 NR 1,000,043
--------------------------------------------------------
500,000 Muskingham County, OH, Hospital Facilities Authority
Weekly VRDNs (Bethesda Care Systems)/(BancOhio National
Bank LOC) VMIG1 500,000
--------------------------------------------------------
1,385,000 Napoleon, OH, 2.49% BANs, 2/23/94 NR(3) 1,385,208
--------------------------------------------------------
3,000,000 North Olmsted, OH, 2.94% BANs, 3/24/94 MIG1 3,003,554
--------------------------------------------------------
420,000 North Olmsted, OH, IDA Weekly VRDNs (Bryant & Stratton
Corp.)/(Society Bank N.A. LOC)/(Subject to AMT) P-1 420,000
--------------------------------------------------------
825,000 North Olmsted, OH, IDR, 3.00% (Therm-All)/(National City
Bank LOC), 2/1/94 P-1 825,000
--------------------------------------------------------
2,430,000 Ohio Housing Finance Agency Weekly VRDNs (Westchester
Village)/(Society Bank N.A. LOC) P-1 2,430,000
--------------------------------------------------------
7,745,000 Ohio Housing Finance Agency, 3.00% TOBs (Lincoln Park
Associates)/(Comerica Bank LOC), Optional Tender 11/1/93 VMIG1 7,745,000
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
$1,000,000 Ohio State Air Quality Development Authority Weekly
VRDNs (Timkin Co.)/(Credit Suisse LOC) A-1+ $ 1,000,000
--------------------------------------------------------
3,350,000 Ohio State Air Quality Development Authority, 2.50% CP
(Cincinnati Gas & Electric Co.)/(Morgan Bank (Delaware)
N.A. LOC), Mandatory Tender 11/9/93 A-1+ 3,350,000
--------------------------------------------------------
4,700,000 Ohio State Air Quality Development Authority, 2.50% CP
(Cleveland Electric Illuminating Co.)/(FGIC Insured),
Mandatory Tender 11/16/93 A-1+ 4,700,000
--------------------------------------------------------
4,850,000 Ohio State Air Quality Development Authority, 2.70% CP
(Cincinnati Gas & Electric Co.)/(Morgan Bank (Delaware)
N.A. LOC), Mandatory Tender 2/11/94 A-1+ 4,850,000
--------------------------------------------------------
3,000,000 Ohio State Air Quality Development Authority, 2.70% CP
(Cleveland Electric Illuminating Co.)/(Citibank N.A.
LOC)/ (FGIC Insured), Mandatory Tender 1/25/94 A-1 3,000,000
--------------------------------------------------------
4,850,000 Ohio State Air Quality Development Authority, 2.85%
Refunding Bonds Annual TOBs (Ohio Edison Company)/
(Bankers Trust Company LOC), Optional Tender 2/1/94 VMIG1 4,851,181
--------------------------------------------------------
1,615,000 Ohio State IDR Weekly VRDNs (Series 1991)/(Standby
Screw, Inc.)/(BancOhio National Bank LOC)/(Subject to
AMT) A-1+ 1,615,000
--------------------------------------------------------
1,000,000 Ohio State Water PCR Bonds Weekly VRDNs (PPG Industries) P-1 1,000,000
--------------------------------------------------------
800,000 Ohio State Weekly VRDNs (John Carroll University)/(PNC
Bank N.A. LOC) P-1 800,000
--------------------------------------------------------
1,650,000 Orrville, OH, IDA Weekly VRDNs (O.S. Associates)/
(National City Bank LOC)/(Subject to AMT) A-1 1,650,000
--------------------------------------------------------
1,000,000 Pickaway County, OH, IDA Weekly VRDNs (PPG Industries) P-1 1,000,000
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
$ 460,000 Portage County, OH, IDA Weekly VRDNs (D&W
Associates)/(Society Bank N.A. LOC) P-1 $ 460,000
--------------------------------------------------------
455,000 Portage County, OH, IDR, 3.05% TOBs (Neidlinger)/
(Society Bank N.A. LOC)/(Subject to AMT), 3/1/94 P-1 455,000
--------------------------------------------------------
6,230,000 Richland County, OH, 2.96% GO BANs, 9/15/94 NR 6,241,027
--------------------------------------------------------
630,000 Ross County, OH, Airport Improvement Bonds, 3.61% BANs
(Series 1991)/(Subject to AMT), 4/29/94 NR 631,828
--------------------------------------------------------
2,200,000 Salem, OH, City School District, 2.55% BANs, 12/9/93 NR 2,200,110
--------------------------------------------------------
2,500,000 Scioto County, OH, Hospital Authority Weekly VRDNs
(AMBAC Insured) A-1 2,500,000
--------------------------------------------------------
1,175,000 Shaker Heights, OH, 2.50% GO BANs, 5/26/94 NR(2) 1,175,318
--------------------------------------------------------
2,000,000 Sharonville, OH, IDR Weekly VRDNs (Xtek, Inc.)/(Fifth
Third Bank LOC)/(Subject to AMT) VMIG1 2,000,000
--------------------------------------------------------
960,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating, Inc.)/
(Society Bank N.A. LOC) P-1 960,000
--------------------------------------------------------
750,000 Stark County, OH, 3.10% General LT BANs, 12/10/93 MIG1 750,156
--------------------------------------------------------
1,800,000 Stark County, OH, IDR Weekly VRDNs (Sancap
Abrasives)/(Society Bank N.A. LOC) P-1 1,800,000
--------------------------------------------------------
1,031,000 Streetsboro, OH, 3.33% General LT Various Purpose BANs,
12/9/93 NR 1,031,134
--------------------------------------------------------
600,000 Student Loan Funding Corp. of Cincinnati, OH, Weekly
VRDNs (Series 1991A)/(National Westminster Bank PLC
LOC)/(Subject to AMT) VMIG1 600,000
--------------------------------------------------------
3,000,000 Summit County, OH, 2.65% BANs, 3/10/94 P-1 3,000,000
--------------------------------------------------------
1,440,000 Summit County, OH, 3.00% (Matech Machine Tool)/(Bank
One, Akron N.A. LOC), 2/1/94 P-1 1,440,000
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
$3,300,000 Summit County, OH, IDR Weekly VRDNs (Maison Aine Limited
Partnership)/(Society Bank N.A. LOC)/(Subject to AMT) P-1 $ 3,300,000
--------------------------------------------------------
900,000 Summit County, OH, IDR, 2.75% Semi-Annual TOBs
(Beechmer-Boyce)/(Society Bank N.A. LOC), 1/15/94 P-1 900,000
--------------------------------------------------------
1,200,000 Summit County, OH, IDR, 2.88% TOBs (Rogers Industrial
Products, Inc.)/(Bank One, Akron N.A. LOC), 11/1/93 P-1 1,200,000
--------------------------------------------------------
855,000 Summit County, OH, IDR, 3.00% TOBs (Universal Rack &
Equipment Company)/(National City Bank, Cleveland LOC),
3/1/94 P-1 855,000
--------------------------------------------------------
435,000 Summit County, OH, IDR, 3.05% TOBs (Keltec, Inc.)/(Bank
One, Akron N.A. LOC)/(Subject to AMT), 3/1/94 P-1 435,000
--------------------------------------------------------
990,000 Summit County, OH, IDR, 3.10% (S.D. Meyers, Inc.)/(Bank
One, Akron N.A. LOC), 8/15/94 P-1 990,000
--------------------------------------------------------
1,000,000 Toledo--Lucas County Port Authority IDA Weekly VRDNs
(Medusa Corporation)/(Bayerische Vereinsbank Ag LOC)/
(Subject to AMT) AAA 1,000,000
--------------------------------------------------------
1,500,000 Toledo--Lucas County Port Authority, 2.50% CP (CSX
Transportation, Inc.)/(Bank of Nova Scotia LOC),
Mandatory Tender 12/14/93 A-1+ 1,500,000
--------------------------------------------------------
3,200,000 Trumbull County, OH, IDA Weekly VRDNs (Series 1989)/
(McDonald Steel, Inc.)/(PNC Bank N.A., LOC)/(Subject to
AMT) A-1 3,200,000
--------------------------------------------------------
3,400,000 Trumbull County, OH, Weekly VRDNs (Community Skilled
Center of Warren, Ohio)/(Marine Bank N.A., Erie LOC) P-1 3,400,000
--------------------------------------------------------
4,500,000 Westlake, OH, IDR Weekly VRDNs (Kahal Limited
Partnership)/(Society Bank LOC)/(Subject to AMT) P-1 4,500,000
--------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
- ---------- -------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED
- ----------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------
$2,000,000 Wood County, OH, Weekly VRDNs (Principle Business
Enterprises)/(National City Bank LOC)/(Subject to AMT) P-1 $ 2,000,000
--------------------------------------------------------
890,000 Wyoming, OH, 3.05% BANs, 12/4/93 NR(3) 890,117
-------------------------------------------------------- ------------
Total 211,139,188
-------------------------------------------------------- ------------
PUERTO RICO--1.2%
--------------------------------------------------------
2,500,000 Government Development Bank of Puerto Rico Weekly VRDNs
(Credit Suisse and Sumitomo Bank Ltd. LOCs) A-1+ 2,500,000
-------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST) $213,639,188+
-------------------------------------------------------- ------------
</TABLE>
* See Notes to Portfolio of Investments.
+ Also represents cost for federal tax purposes.
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMBAC -- American Municipal Bond Assurance Corporation
AMT -- Alternative Minimum Tax
BANs -- Bond Anticipation Notes
CP -- Commercial Paper
FGIC -- Financial Guaranty Insurance Company
GO -- General Obligation
HFA -- Housing Finance Authority/Agency
IDA -- Industrial Development Authority
IDR -- Industrial Development Revenue
IDRB -- Industrial Development Revenue Bonds
LOC -- Letter of Credit
LOCs -- Letters of Credit
LT -- Limited Tax
PCR -- Pollution Control Revenue
TOBs -- Tender Option Bonds
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
</TABLE>
Note: The categories of investments are shown as a percentage of net assets
($208,765,525) at
October 31, 1993.
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
S&P
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S
Moody's short-term ratings are designated Moody's Investment Grade (MIG or VMIG
(see below)). The purpose of the MIG or VMIG ratings is to provide investors
with a simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
FITCH
Fitch's short-term ratings place greater emphasis on the existence of liquidity
necessary to meet the issuer's obligations in a timely manner.
F-1 Strongest degree of assurance for timely payment. Those issues determined
to provide exceptionally strong credit quality are given a plus (+)
designation.
F-2 Notes reflecting a degree of assurance for timely payment only slightly
less in degree than the highest category.
VARIABLE RATE DEMAND NOTES (VRDNS)
AND
TENDER OPTION BONDS (TOBS) RATINGS
S&P
Standard & Poor's assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-1+, AA/A-1+, and A/A-1. (The
definitions for the long-term and the short-term ratings are provided below.)
- --------------------------------------------------------------------------------
MOODY'S
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity.
In this case, two ratings are usually assigned (for example, Aaa/VMIG-1); the
first representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the second representing an evaluation of
the degree of risk associated with the demand feature. The VMIG rating can be
assigned a 1 or 2 designation using the same definitions described above for the
MIG rating.
FITCH
Fitch usually assigns two ratings to long-term debt issues that include
provisions for a variable rate demand feature. The long-term rating addresses
the ability of the obligor to pay debt service and the short-term rating
addresses the timely payment of the demand feature. Examples of rating
designations are as follows: AAA/F-1+, AA/F-1+, and A/F-1. (The definitions for
the long-term and short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
S&P
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
sign designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."
MOODY'S
P-1 Issues rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2 Issues rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
The following is an explanation of the Fitch ratings. These ratings are not
referenced in the Portfolio of Investments.
FITCH
F-1 Issues assigned this rating reflect a strong degree of assurance for timely
payment. Those issuers determined to possess the strongest degree of
assurance for timely payment are denoted with a plus (+) sign designation.
- --------------------------------------------------------------------------------
F-2 Issuers carrying this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the "F-1+" and
"F-1" categories.
LONG-TERM DEBT RATINGS
(INVESTMENT GRADE)
S&P
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
principal and interest than debt rated in higher ratings categories.
MOODY'S
AAA Bonds that are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large margin and
principal is secure. While the various protective elements are likely to
change, such changes which can be foreseen are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds that are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in AAA securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in AAA securities.
A Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment some time in the
future.
BAA Bonds which are rated BAA are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
- --------------------------------------------------------------------------------
FITCH
AAA Bonds that are rated AAA are of the highest credit quality. The obligor has
an exceptionally strong ability to pay debt service.
AA Bonds that are rated AA are of very high quality. The obligor has a very
strong ability to pay debt service. Debt rated in this category may also
have a (+) or (-) sign with a rating to indicate the relative position
within the rating category.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
NR indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P, Moody's, or Fitch with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated in one of the two highest short-term ratings
categories by a nationally recognized statistical rating organization.
NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "'AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by
Fitch.
NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch.
NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "A" by Standard & Poor's, Moody's, or Fitch.
NR(4) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by
Fitch.
OHIO MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $213,639,188
- --------------------------------------------------------------------------------
Cash 239,476
- --------------------------------------------------------------------------------
Interest receivable 1,354,633
- --------------------------------------------------------------------------------
Deferred expenses (Note 2E) 36,258
- -------------------------------------------------------------------------------- ------------
Total assets 215,269,555
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased $6,241,027
- -------------------------------------------------------------------
Dividends payable 156,809
- -------------------------------------------------------------------
Accrued expenses and other liabilities 106,194
- ------------------------------------------------------------------- ----------
Total liabilities 6,504,030
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 208,765,525 shares of beneficial interest outstanding $208,765,525
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- --------------------------------------------------------------------------------
Institutional Shares ($81,748,179 / 81,748,179 shares of beneficial interest
outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
Cash II Shares ($127,017,346 / 127,017,346 shares of beneficial interest
outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------
Interest income (Note 2B) $5,659,405
- ----------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------
Investment advisory fee (Note 5) $ 813,048
- ---------------------------------------------------------------------
Administrative personnel and services (Note 5) 325,056
- ---------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 112,854
- ---------------------------------------------------------------------
Trustees' fees 4,273
- ---------------------------------------------------------------------
Auditing fees 15,942
- ---------------------------------------------------------------------
Legal fees 11,605
- ---------------------------------------------------------------------
Printing and postage 13,392
- ---------------------------------------------------------------------
Fund share registration costs 36,941
- ---------------------------------------------------------------------
Distribution services fees (Note 5) 404,917
- ---------------------------------------------------------------------
Insurance premiums 17,775
- ---------------------------------------------------------------------
Miscellaneous 12,562
- --------------------------------------------------------------------- ----------
Total expenses 1,768,365
- ---------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 5) 392,961
- --------------------------------------------------------------------- ----------
Net expenses 1,375,404
- ---------------------------------------------------------------------------------- ----------
Net investment income $4,284,001
- ---------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------
1993 1992
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------
Net investment income $ 4,284,001 5,045,914
- ---------------------------------------------------------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ----------------------------------------------------------------
Dividends to shareholders from net investment income:
- ----------------------------------------------------------------
Institutional Shares (1,570,539) (2,231,320)
- ----------------------------------------------------------------
Cash II Shares (2,713,462) (2,814,594)
- ---------------------------------------------------------------- ------------- ------------
Change in net assets from distributions to shareholders (4,284,001) (5,045,914)
- ---------------------------------------------------------------- ------------- ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- ----------------------------------------------------------------
Proceeds from sale of shares 647,552,523 501,839,900
- ----------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 2,703,916 3,069,194
- ----------------------------------------------------------------
Cost of shares redeemed (649,710,289) (435,542,255)
- ---------------------------------------------------------------- ------------- ------------
Change in net assets from Fund share transactions 546,150 69,366,839
- ---------------------------------------------------------------- ------------- ------------
Change in net assets 546,150 69,366,839
- ----------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------
Beginning of period 208,219,375 138,852,536
- ---------------------------------------------------------------- ------------- ------------
End of period $ 208,765,525 $208,219,375
- ---------------------------------------------------------------- ------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company
with several portfolios. The financial statements included herein are only those
of Ohio Municipal Cash Trust (the "Fund"). The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.
The Fund provides two classes of shares ("Institutional Shares" and "Cash II
Shares"). Cash II Shares are identical in all respects to Institutional Shares
except that Cash II Shares are sold pursuant to a distribution plan ("Plan")
adopted in accordance with Investment Company Act Rule 12b-1.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that
the best method currently available for valuing portfolio securities is
amortized cost. The Fund's use of the amortized cost method to value its
portfolio securities is conditioned on its compliance with Rule 2a-7 under
the Investment Company Act of 1940.
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state, than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such
factors, at October 31, 1993, 72.5% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The
aggregate percentages by financial institution ranged from 0.4% to 11.2% of
total investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest earned net of premium, and original issue discount as
required by the Internal Revenue Code. (the "Code").
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code applicable to investment companies and to distribute to
shareholders each year all of its net income. Accordingly, no provision for
federal tax is necessary. Dividends paid by the Fund representing net
interest received on tax-exempt municipal securities are not includable by
shareholders as gross income for federal income tax purposes because the Fund
intends to meet certain requirements of the Code applicable to regulated
investment companies which will enable the Fund to pay exempt-interest
dividends. The portion of such interest, if any, earned on private
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
activity bonds issued after August 7, 1986 may be considered a tax preference
item to shareholders for the purpose of computing the alternative minimum
tax.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Fund engages
in such transactions, it will do so for the purpose of acquiring portfolio
securities consistent with its investment objectives and policies and not for
the purpose of investment leverage. The Fund will record a when-issued
security and the related liability on the trade date. Until the securities
are received and paid for, the Fund will maintain security positions such
that sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being amortized
using the straight-line method through April 1996.
F. EXPENSES--Expense of the Fund (other than distribution services fees) and
waivers and reimbursements, if any, are allocated to each class of shares
based on its relative daily average net assets for the period. Expenses
incurred by the Trust which do not specifically relate to an individual Fund
are allocated among all Funds based on a Fund's relative net asset value size
or as deemed appropriate by the administrator.
G. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) DIVIDENDS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash, or in additional
shares at the net asset value on the payable date.
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1993, capital paid-in aggregated $208,765,525.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
1993 1992
------------ ------------
<S> <C> <C>
INSTITUTIONAL SHARES
- -----------------------------------------------------------------
Shares outstanding, beginning of period 74,342,130 44,771,476
- -----------------------------------------------------------------
Shares sold 222,190,842 213,513,139
- -----------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 60,099 286,483
- -----------------------------------------------------------------
Shares redeemed (214,844,892) (184,228,968)
- ----------------------------------------------------------------- ------------ ------------
Shares outstanding, end of period 81,748,179 74,342,130
- ----------------------------------------------------------------- ------------ ------------
CASH II SHARES
- -----------------------------------------------------------------
Shares outstanding, beginning of period 133,877,245 94,081,060
- -----------------------------------------------------------------
Shares sold 425,361,681 288,326,761
- -----------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 2,643,817 2,782,711
- -----------------------------------------------------------------
Shares redeemed (434,865,397) (251,313,287)
- ----------------------------------------------------------------- ------------ ------------
Shares outstanding, end of period 127,017,346 133,877,245
- ----------------------------------------------------------------- ------------ ------------
</TABLE>
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Management, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to 0.40 of 1% of the Fund's
average daily net assets. The Adviser has voluntarily agreed to waive a portion
of its fee. The Adviser can modify or terminate this voluntary waiver of
expenses at any time in its sole discretion. During the fiscal year ended
October 31, 1993 the Adviser earned $813,048 of which $392,961 was voluntarily
waived.
Organizational expenses ($37,324) and start-up administrative services expenses
($40,612) were borne initially by the Adviser. The Fund has agreed to pay the
Adviser, at an annual rate of .005 of 1% of average daily net assets and .01 of
1% of average daily net assets for organization expenses and start-up
administrative expenses, respectively, until the expenses borne initially by the
Adviser are reimbursed,
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
or the expiration of five years from April 24, 1991, the date the Trust's
portfolio became effective, whichever occurs earlier. During the fiscal year
ended October 31, 1993, the Fund paid Adviser $10,106 and $20,211, respectively,
pursuant to this agreement.
During the fiscal year ended October 31, 1993, the Fund engaged in purchase and
sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7
of the Investment Company Act of 1940 amounting to $231,225,000 and
$257,985,000, respectively. These purchases and sales were conducted on an
arms-length basis insofar as they were transacted for cash consideration only,
at independent current market prices and without brokerage commission, fee or
other remuneration.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Trust will compensate Federated
Securities Corp., ("FSC"), the principal distributor, from the assets of the
Fund, for fees it paid which relate to the distribution and administration of
the Fund's Cash II Shares. The Plan provides that the Fund may incur
distribution expenses up to .30 of 1% of the average daily net assets of the
Cash II Shares, annually, to pay commissions, maintenance fees and to compensate
the distributor. During the fiscal year ended October 31, 1993, FSC earned
$404,917 in distribution services fees, none of which was voluntarily waived.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Certain Officers and Trustees of the
Trust are Officers and Directors of the above corporations.
(6) CURRENT CREDIT RATINGS
Current credit ratings and related notes are unaudited.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST (Ohio Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of Ohio
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio investments,
as of October 31, 1993, the related statement of operations for the year then
ended, and the statement of changes in net assets, and the financial highlights
(see pages 2 and 17 of the prospectus) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1993, by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Ohio
Municipal Cash Trust, an investment portfolio of Federated Municipal Trust, as
of October 31, 1993, the results of its operations for the year then ended, and
the changes in its net assets and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania
December 13, 1993
(This page intentionally left blank)
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Ohio Municipal Cash Trust
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
INSTITUTIONAL SHARES
PROSPECTUS
A Non-Diversified Portfolio of Federated
Municipal Trust, an Open-End
Management Investment Company
December 31, 1993
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
1030105A-IS (12/93)
OHIO MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH II SHARES
INSTITUTIONAL SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with the
respective prospectus for Cash II Shares and Institutional Shares of Ohio
Municipal Cash Trust (the "Fund") dated December 31, 1993. This Statement is not
a prospectus itself. To receive a copy of either prospectus, write or call
Federated Municipal Trust.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1993
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Acceptable Investments 1
When-Issued and Delayed
Delivery Transactions 1
Temporary Investments 2
Investment Limitations 2
Ohio Investment Risks 4
FEDERATED MUNICIPAL TRUST MANAGEMENT 4
- ---------------------------------------------------------------
Officers and Trustees 4
The Funds 6
Fund Ownership 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 7
- ---------------------------------------------------------------
Adviser to the Fund 7
Advisory Fees 7
ADMINISTRATIVE SERVICES 8
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 8
- ---------------------------------------------------------------
PURCHASING SHARES 8
- ---------------------------------------------------------------
Distribution Plan (Cash II Shares Only) 8
Conversion to Federal Funds 9
DETERMINING NET ASSET VALUE 9
- ---------------------------------------------------------------
Use of the Amortized Cost Method 9
REDEEMING SHARES 10
- ---------------------------------------------------------------
Redemption in Kind 10
TAX STATUS 11
- ---------------------------------------------------------------
The Fund's Tax Status 11
YIELD 11
- ---------------------------------------------------------------
EFFECTIVE YIELD 11
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 11
- ---------------------------------------------------------------
Tax-Equivalency Table 11
PERFORMANCE COMPARISONS 13
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was
established as a Massachusetts business trust under a Declaration of Trust dated
September 1, 1989.
Shares of the Fund are offered in two classes, known as Cash II Shares and
Institutional Shares (individually and collectively referred to as "Shares").
This Combined Statement of Additional Information relates to the above-mentioned
Shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the State of Ohio
and Ohio municipalities consistent with stability of principal. The investment
objective cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of Ohio
and of other states, territories and possessions of the United States, including
the District of Columbia, and any political subdivision or financing authority
of any of these, the income from which is, in the opinion of qualified legal
counsel, exempt from federal regular income tax and Ohio state income tax
imposed upon non-corporate taxpayers.
When determining whether a Ohio municipal security presents minimal credit
risks, the investment adviser considers the creditworthiness of the issuer of
the security, the issuer of a demand feature if the Fund has the unconditional
right to demand payment for the security, or the guarantor of payment by either
of those issuers.
If a security loses its rating or the security's rating is reduced below the
required minimum after the Fund purchased it, the Fund is not required to sell
the security. The investment adviser considers this event, however, in its
determination of whether the Fund should continue to hold the security in its
portfolio. If ratings made by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") change because of changes in those
organizations or in their rating systems, the Fund will try to use comparable
ratings as standards in accordance with the investment policies described in the
Fund's prospectuses.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests which represent undivided proportional interests in lease
payments by a governmental or nonprofit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that
the participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they became
due. In the event of a default or failure of appropriation, unless the
participation interests are credit enhanced, it is unlikely that the
participants would be able to obtain an acceptable substitute source of
payment.
Under the criteria currently established by the Board of Trustees
("Trustees"), the Fund's investment adviser must consider the following
factors in determining the liquidity of municipal lease securities: (1)
the frequency of trades and quotes for the security; (2) the volatility
of quotations and trade prices for the security; (3) the number of
dealers willing to purchase or sell the security and the number of
potential purchasers; (4) dealer undertakings to make a market in the
security; (5) the nature of the security and the nature of the
marketplace trades; (6) the rating of the security and the financial
condition and prospects of the issuer of the security; (7) such other
factors as may be relevant to the Fund's ability to dispose of the
security; (8) whether the lease can be terminated by the lessee; (9) the
potential recovery, if any, from a sale of the leased property upon
termination of the lease; (10) the lessee's general credit strength; (11)
the likelihood that the lessee will discontinue appropriating funding for
the leased property because the property is no longer deemed essential to
its operations; and (12) any credit enhancement or legal recourse
provided upon an event of nonappropriation or other termination of the
lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
- --------------------------------------------------------------------------------
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
The Fund may engage in these transactions to an extent that would cause the
segregation of an amount up to 20% of the total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in high quality temporary investments during times of
unusual market conditions for defensive purposes and to maintain liquidity.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale
to repurchase them at a mutually agreed upon time and price within one
year from the date of acquisition. The Fund or its custodian will take
possession of the securities subject to repurchase agreements and these
securities will be marked to market daily. To the extent that the
original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund will only enter
into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's
investment adviser to be creditworthy pursuant to guidelines established
by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the
Fund transfers possession of a portfolio instrument to another person,
such as a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an
agreed-upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase
agreements does not ensure that the Fund will be able to avoid selling
portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund,
in a dollar amount sufficient to make payment for obligations to be
purchased, are segregated at the trade date. These securities are marked
to market daily and maintained until the transaction is settled.
From time to time, such as when suitable Ohio municipal securities are not
available, the Fund may maintain a portion of its assets in cash. Any portion of
the Fund's assets maintained in cash will reduce the amount of assets in Ohio
municipal securities and thereby reduce the Fund's yield.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for the
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts
borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess of 5% of
its total assets are outstanding.
During the period any reverse repurchase agreements are outstanding, the
Fund will restrict the purchase of portfolio securities to money market
instruments maturing on or before the expiration date of the reverse
- --------------------------------------------------------------------------------
repurchase agreements, but only to the extent necessary to assure
completion of the reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of 1933.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or nonpublicly issued Ohio municipal securities or temporary
investments or enter into repurchase agreements, in accordance with its
investment objective, policies, and limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of
the value of its assets in cash or cash items (including instruments
issued by a U.S. branch of a domestic bank or savings and loan having
capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment), securities issued or guaranteed by the U.S.
government, its agencies, or instrumentalities, or instruments secured by
these money market instruments, such as repurchase agreements.
The above investment limitations cannot be changed without shareholder approval.
The Fund does not consider the issuance of separate classes of shares to involve
the issuance of "senior securities" within the meaning of the investment
limitation set forth above. The following limitations, however, may be changed
by the Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, reorganization, or other
acquisition.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
industrial development bonds or other municipal securities where the
principal and interest are the responsibility of companies (or
guarantors, where applicable) with less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
- --------------------------------------------------------------------------------
DEALING IN PUTS AND CALLS
The Fund will not purchase or sell puts, calls, straddles, spreads, or
any combination of them, except that the Fund may purchase municipal
securities accompanied by agreements of sellers to repurchase them at the
Fund's option.
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs, or leases.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
securities which are illiquid, including repurchase agreements providing
for settlement in more than seven days after notice, certain restricted
securities not determined by the Trustees to be liquid, and
non-negotiable fixed time deposits with maturities over seven days.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its net assets during the coming fiscal year.
OHIO INVESTMENT RISKS
The Fund invests in obligations of Ohio ("the State") issuers which result in
the Fund's performance being subject to risks associated with the overall
conditions present within the State. The following information is a brief
summary of the prevailing economic conditions and general summary of the state's
financial condition. This information is based on official statements relating
to securities that are believed to be reliable but should not be considered as a
complete description of all relevant information.
The State has experienced revenue shortfalls as a result of the recent
recession. The State has acted promptly in addressing the fall in revenue with
an expansion of the sales tax base and cuts in budgetary appropriations.
However, due to the length and severity of the recent recession, the State has
fully depleted the budget stabilization fund that exceeded $300 million, to
achieve balanced budgets over the past several years.
The Ohio economy is largely composed of manufacturing which is concentrated in
the automobile sector and other durable goods. The exposure to these industries
particularly the auto sector leaves the State vulnerable to an economic slowdown
associated with business cycles. The State has diversified its economy somewhat
over the past decade with services and trade composing roughly 50% of the
economy. Unemployment in Ohio over the past two years has been below the
national average, but population growth as in many great lakes states has been
stagnant.
The overall condition of the State is further demonstrated by its debt ratings.
Ohio, once rated Aaa by Moody's in the decade of the 70's, was downgraded to Aa
in 1979 and has maintained this rating since the one time downgrade. Standard &
Poor's first rated the State in 1984 at AA that has remained unchanged.
The Fund's concentration in securities issued by the State and its political
subdivisions provides a greater level of risk than a fund whose assets are
diversified across numerous states and municipal issuers. The ability of the
State or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political, and demographic
conditions within the State; and the underlying fiscal condition of the State,
its counties, and its municipalities.
FEDERATED MUNICIPAL TRUST MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Management,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, Inc., and the Funds (as defined below).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
John F. Donahue+* Chairman and Chairman and Trustee, Federated Investors; Chairman and
Federated Investors Trustee Trustee, Federated Advisers, Federated Management, and
Tower Federated Research; Director, AEtna Life and Casualty
Pittsburgh, PA Company; Chief Executive Officer and Director, Trustee,
or Managing General Partner of the Funds; formerly,
Director,
The Standard Fire Insurance Company. Mr. Donahue is the
father of J. Christopher Donahue, Vice President of the
Trust.
- -----------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior
Wood/IPC Commercial Vice-President, John R. Wood and Associates, Inc.,
Department Realtors; President Northgate Village Development
John R. Wood and Corporation; General Partner or Trustee in private real
Associates, Inc., Realtors estate ventures in Southwest Florida; Director, Trustee,
3255 Tamiami Trail North or Managing General Partner of the Funds; formerly,
Naples, FL President, Naples Property Management, Inc.
- -----------------------------------------------------------------------------------------------------------------
William J. Copeland Trustee Director and Member of the Executive Committee, Michael
One PNC Plaza- Baker, Inc.; Director, Trustee, or Managing General
23rd Floor Partner of the Funds; formerly Vice Chairman and
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.
- -----------------------------------------------------------------------------------------------------------------
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund,
571 Hayward Mill Road Inc.; Director, Trustee, or Managing General Partner of
Concord, MA the Funds; formerly, Director, Blue Cross of
Massachusetts, Inc.
- -----------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and
3471 Fifth Avenue Montefiore Hospitals; Clinical Professor of Medicine and
Suite 1111 Trustee, University of Pittsburgh; Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds.
- -----------------------------------------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director,
5916 Penn Mall Eat 'N Park Restaurants, Inc., and Statewide Settlement
Pittsburgh, PA Agency, Inc.; Director, Trustee, or Managing General
Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
- -----------------------------------------------------------------------------------------------------------------
Glen R. Johnson* President and Trustee, Federated Investors; President and/or Trustee of
Federated Investors Trustee some of the Funds; staff member, Federated Securities
Tower Corp. and Federated Administrative Services, Inc.
Pittsburgh, PA
- -----------------------------------------------------------------------------------------------------------------
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of
225 Franklin Street Massachusetts; Director, Trustee, or Managing General
Boston, MA Partner of the Funds; formerly, President, State Street
Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
- -----------------------------------------------------------------------------------------------------------------
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the
Funds; formerly, Vice Chairman, Horizon Financial, F.A.
- -----------------------------------------------------------------------------------------------------------------
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant;
1202 Cathedral of Trustee, Carnegie Endowment for International Peace, RAND
Learning Corporation, Online Computer Library Center, Inc., and
University of Pittsburgh U.S. Space Foundation; Chairman, Czecho Slovak Management
Pittsburgh, PA Center; Director, Trustee, or Managing General Partner of
the Funds; President Emeritus, University of Pittsburgh;
formerly, Chairman, National Advisory Council for
Environmental Policy and Technology.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee,
4905 Bayard Street or Managing General Partner of the Funds.
Pittsburgh, PA
- -----------------------------------------------------------------------------------------------------------------
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee,
Federated Investors Federated Advisers, Federated Management, and Federated
Tower Research; President and Director, Federated
Pittsburgh, PA Administrative Services, Inc.; Trustee, Federated
Services Company; President or Vice President of the
Funds; Director, Trustee, or Managing General Partner of
some of the Funds. Mr. Donahue is the son of John F.
Donahue, Chairman and Trustee of the Trust.
- -----------------------------------------------------------------------------------------------------------------
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated
Federated Investors Investors; Chairman and Director, Federated Securities
Tower Corp.; President or Vice President of the Funds; Director
Pittsburgh, PA or Trustee of some of the Funds.
- -----------------------------------------------------------------------------------------------------------------
Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated
Federated Investors and Treasurer Investors;
Tower Vice President and Treasurer, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Trustee,
Federated Services Company; Executive Vice President,
Treasurer, and Director, Federated Securities Corp.;
Chairman, Treasurer, and Director, Federated
Administrative Services, Inc.; Trustee or Director of
some of the Funds; Vice President and Treasurer of the
Funds.
- -----------------------------------------------------------------------------------------------------------------
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee,
Federated Investors and Secretary Federated Investors; Vice President, Secretary, and
Tower Trustee, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Trustee, Federated Services Company;
Executive Vice President, Secretary, and Director,
Federated Administrative Services, Inc.; Director and
Executive Vice President, Federated Securities Corp.;
Vice President and Secretary of the Funds.
- -----------------------------------------------------------------------------------------------------------------
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors;
Federated Investors Executive Vice President, Federated Securities Corp.;
Tower President and Trustee, Federated Advisers, Federated
Pittsburgh, PA Management and Federated Research; Vice President of the
Funds; Director, Trustee, or Managing General Partner of
some of the Funds; formerly, Vice President, The Standard
Fire Insurance Company and President of its Federated
Research Division.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940, as amended.
+ Member of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series,
Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT
Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated
Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed
Income Securities, Inc.; Fortress
- --------------------------------------------------------------------------------
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund,
Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.;
Government Income Securities, Inc.; High Yield Cash Trust; Intermediate
Municipal Trust; Investment Series Funds, Inc.; Investment Series Trust; Liberty
Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty U.S. Government
Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark Twain
Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust;
111 Corcoran Funds; The Passageway Funds; The Planters Funds; Portage Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet
Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and
Bond Fund, Inc.; Sunburst Funds Targeted Duration Trust; Tax-Free Instruments
Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government
Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for
U.S. Treasury Obligations.
FUND OWNERSHIP
Officers and Trustees, as a group, own more than 1% of the Fund's outstanding
Shares as of November 29, 1993.
As of November 29, 1993, the following shareholders of record owned 5% or more
of the outstanding Institutional Shares of the Fund: Mahoning National Bank,
Youngstown, Ohio, owned approximately 5,020,194 Shares (5.93%); Panabco, Newark,
Ohio, owned approximately 11,487,113 Shares (13.57%); Society Bank, Dayton,
Ohio, owned approximately 12,448,217 Shares (14.71%); Parcol & Co., Akron, Ohio,
owned approximately 10,486,239 Shares (12.39%); Grand Old Co., Zanesville, Ohio,
owned approximately 4,926,666 Shares (5.82%); Society National Bank, N.A.,
Cleveland, Ohio, owned approximately 13,312,062 Shares (15.73%); and SNBSO &
Co., Springfield, Ohio, owned approximately 9,276,250 Shares (10.96%).
As of November 29, 1993, the following shareholders of record owned 5% or more
of the outstanding Cash II Shares of the Fund: First National Bank of Ohio,
Akron, Ohio, owned approximately 7,345,169 Shares (5.65%); and Gradison &
Company Inc., Cincinnati, Ohio, owned approximately 77,210,261 Shares (59.38%).
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All of the Class A (voting) shares of Federated Investors
are owned by a trust, the trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue. John F. Donahue is Chairman and Trustee,
Federated Management; Chairman and Trustee, Federated Investors; and Chairman
and Trustee of the Trust. John A. Staley, IV, is President and Trustee,
Federated Management; Vice President and Trustee, Federated Investors; Executive
Vice President, Federated Securities Corp.; and Vice President of the Trust. J.
Christopher Donahue is Trustee, Federated Management; President and Trustee,
Federated Investors; President and Director, Federated Administrative Services,
Inc.; Trustee, Federated Services Company; and Vice President of the Trust. John
W. McGonigle is Vice President, Secretary, and Trustee, Federated Management;
Trustee, Vice President, Secretary and General Counsel, Federated Investors;
Executive Vice President, Secretary and Director, Federated Administrative
Services, Inc.; Executive Vice President and Director, Federated Securities
Corp; Trustee, Federated Services Company; and Vice President and Secretary of
the Trust.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
October 31, 1993, 1992, and 1991, the Fund's adviser earned $813,048, $681,466,
and $179,829, respectively, of which $392,961, $422,901, and $144,855,
respectively, were voluntarily waived because of undertakings to limit the
Fund's expenses.
- --------------------------------------------------------------------------------
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
These arrangements are not part of the advisory contract and have been
established only to comply with applicable state authorities. They may be
amended or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund at approximate cost.
For the fiscal years ended October 31, 1993, 1992, and 1991, the Fund incurred
costs for administrative services of $325,056, $267,671 and $80,247,
respectively. John A. Staley, IV, an officer of the Trust, and Dr. Henry J.
Gailliot, an officer of Federated Management, the adviser to the Fund, each hold
approximately 15% and 20%, respectively, of the outstanding common stock and
serve as directors of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services, Inc. For the
fiscal years ended October 31, 1993, 1992, and 1991, Federated Administrative
Services, Inc. paid approximately $165,431, $189,741, and $187,677,
respectively, for services provided by Commercial Data Services, Inc.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the investment adviser will generally use those
who are recognized dealers in specific portfolio instruments, except when a
better price and execution of the order can be obtained elsewhere. The adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve wire system are open for business.
The procedure for purchasing Shares is explained in the respective prospectus
under "Investing in Cash II Shares" and "Investing in Institutional Shares."
DISTRIBUTION PLAN (CASH II SHARES ONLY)
With respect to the Cash II Shares class of the Fund, the Trust has adopted a
Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange
Commission under the Investment Company Act of 1940 (the "Plan").
- --------------------------------------------------------------------------------
The Plan provides for payment of fees to Federated Securities Corp. to finance
any activity which is principally intended to result in the sale of the Fund's
Shares subject to the Plan. Such activities may include the advertising and
marketing of Shares; preparing, printing, and distributing prospectuses and
sales literature to prospective shareholders, brokers, or administrators; and
implementing and operating the Plan. Pursuant to the Plan, the distributor may
pay fees to brokers for distribution and administrative services and to
administrators for administrative services as to Shares. The administrative
services are provided by a representative who has knowledge of the shareholder's
particular circumstances and goals and include, but are not limited to:
communicating account openings; communicating account closings; entering
purchase transactions; entering redemption transactions; providing or arranging
to provide accounting support for all transactions, wiring funds and receiving
funds for Share purchases and redemptions, confirming and reconciling all
transactions; reviewing the activity in Fund accounts; providing training and
supervision of broker personnel; posting and reinvesting dividends to Fund
accounts or arranging for this service to be performed by the Fund's transfer
agent; and maintaining and distributing current copies of prospectuses and
shareholder reports to the beneficial owners of Shares and prospective
shareholders.
The Board of Trustees expects that the adoption of the Plan will result in the
sale of a sufficient number of Shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.
For the fiscal years ended October 31, 1993, 1992, and 1991, brokers and
administrators (financial institutions) earned fees in the amounts of $404,917,
$295,193, and $87,793, respectively, of which $0, $0, and $5,132, respectively,
were voluntarily waived, pursuant to the Plan.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. State Street Bank and Trust
Company acts as the shareholder's agent in depositing checks and converting them
to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a Share at $1.00. The days on which
net asset value is calculated by the Fund are described in the respective
prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7, as amended (the
"Rule"), promulgated by the Securities and Exchange Commission under the
Investment Company Act of 1940. Under the Rule, the Trustees must establish
procedures reasonably designed to stabilize the net asset value per share, as
computed for purposes of distribution and redemption, at $1.00 per share, taking
into account current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party (1) on no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same-day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
Although demand features and standby commitments are techniques and are defined
as "puts" under the Rule, the Fund does not consider them to be "puts" as that
term is used in the Fund's investment limitations. Demand features and standby
commitments are features which enhance an instrument's liquidity, and the
investment limitation which proscribes puts is designed to prohibit the purchase
and sale of put and call options and is not designed to prohibit the Fund from
using techniques which enhance the liquidity of portfolio instruments.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.5% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average
- --------------------------------------------------------------------------------
portfolio maturity) to minimize any material dilution or other unfair
results arising from differences between the two methods of determining
net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risk and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than 397 days can be
purchased by the Fund. For a discussion of the treatment of variable rate
municipal securities with demand features, refer to "Variable Rate Demand
Notes" in the prospectus.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on Shares of
the Fund, computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above, may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on Shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
respective prospectus under "Redeeming Cash II Shares," and "Redeeming
Institutional Shares." Although State Street Bank does not charge for telephone
redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective Fund's portfolio. To the extent
available, such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem Shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net asset
value of the respective class during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for Cash II Shares for the seven-day period ended October 31,
1993 was 1.94%. The yield for Institutional Shares was 2.24% for the same
period.
The Fund calculates its yield daily, for both classes of shares, based upon the
seven days ending on the day of the calculation, called the "base period." This
yield is computed by:
- - determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net change
excluding capital changes but including the value of any additional shares
purchased with dividends earned from the original one share and all dividends
declared on the original and any purchased shares;
- - dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
- - multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares the performance will be reduced for those shareholders paying
those fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Fund's effective yield for Cash II Shares for the seven-day period ended
October 31, 1993 was 1.96%. The effective yield for Institutional Shares was
2.26% for the same period.
The Fund's effective yield for both classes of Shares is computed by compounding
monthly the unannualized base period return by:
- - adding 1 to the base period return;
- - raising the sum to the 365/7th power; and
- - subtracting 1 from the result.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The Fund's tax-equivalent yield for Cash II Shares for the seven-day period
ended October 31, 1993 was 2.94%. The tax-equivalent yield for Institutional
Shares was 3.39% for the same period.
The tax-equivalent yield for both classes of Shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that either class of
Shares would have had to earn to equal its actual yield, assuming a joint 28%
federal tax rate and the 5.9% regular personal income tax rate imposed by Ohio
and assuming that income earned by the Fund is 100% tax-exempt on a regular
federal, state, and local basis.
TAX-EQUIVALENCY TABLE
Both classes of Shares may also use a tax-equivalency table in advertising and
sales literature. The interest earned by the municipal securities in the Fund's
portfolio generally remains free from federal regular income tax, and from the
- --------------------------------------------------------------------------------
regular personal income tax imposed by Ohio*. As the table below indicates, a
"tax-free" investment is an attractive choice for investors, particularly in
times of narrow spreads between "tax-free" and taxable yields.
<TABLE>
<S> <C> <C> <C> <C> <C>
TAXABLE YIELD EQUIVALENT FOR 1993
STATE OF OHIO
- -----------------------------------------------------------------------------------------------------------
FEDERAL TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE:
19.457% 33.201% 37.900% 43.500% 47.100%
- -----------------------------------------------------------------------------------------------------------
SINGLE RETURN: $1-22,100 $22,101-53,500 $53,501-115,000 $115,001-250,000 OVER $250,000
- -----------------------------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- -----------------------------------------------------------------------------------------------------------
1.50% 1.86% 2.25% 2.42% 2.65% 2.84%
2.00% 2.48% 2.99% 3.22% 3.54% 3.78%
2.50% 3.10% 3.74% 4.03% 4.42% 4.73%
3.00% 3.72% 4.49% 4.83% 5.31% 5.67%
3.50% 4.35% 5.24% 5.64% 6.19% 6.62%
4.00% 4.97% 5.99% 6.44% 7.08% 7.56%
4.50% 5.59% 6.74% 7.25% 7.96% 8.51%
5.00% 6.21% 7.49% 8.05% 8.85% 9.45%
5.50% 6.83% 8.23% 8.86% 9.73% 10.40%
6.00% 7.45% 8.98% 9.66% 10.62% 11.34%
</TABLE>
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.
<TABLE>
<S> <C> <C> <C> <C> <C>
TAXABLE YIELD EQUIVALENT FOR 1993
STATE OF OHIO
- -----------------------------------------------------------------------------------------------------------
FEDERAL TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE:
20.201% 33.943% 37.900% 43.500% 47.100%
- -----------------------------------------------------------------------------------------------------------
JOINT RETURN: $1-36,900 $36,901-89,150 $89,151-140,000 $140,001-250,000 OVER $250,000
- -----------------------------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- -----------------------------------------------------------------------------------------------------------
1.50% 1.88% 2.27% 2.42% 2.65% 2.84%
2.00% 2.51% 3.03% 3.22% 3.54% 3.78%
2.50% 3.13% 3.78% 4.03% 4.42% 4.73%
3.00% 3.76% 4.54% 4.83% 5.31% 5.67%
3.50% 4.39% 5.30% 5.64% 6.19% 6.62%
4.00% 5.01% 6.06% 6.44% 7.08% 7.56%
4.50% 5.64% 6.81% 7.25% 7.96% 8.51%
5.00% 6.27% 7.57% 8.05% 8.85% 9.45%
5.50% 6.89% 8.33% 8.86% 9.73% 10.40%
6.00% 7.52% 9.08% 9.66% 10.62% 11.34%
</TABLE>
NOTE: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The above charts are for illustrative purposes only. They are not an indicator
of past or future performance of either class of Shares.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local regular or alternative minimum taxes.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance of both classes of Shares depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates on money market instruments;
- - changes in the Fund's or either class of Share's expenses; and
- - the relative amount of Fund cash flow.
From time to time, the Fund may advertise the performance of both classes of
Shares compared to similar funds or portfolios using certain indices, reporting
services, and financial publications. These may include the following:
- - LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "money market
funds" category in advertising and sales literature.
Investors may use an index in addition to the prospectus of either class of
Shares to obtain a more complete view of the performance of that class before
investing. Of course, when comparing performance of either class of Shares to
any index, factors such as composition of the index and prevailing market
conditions should be considered in assessing the significance of such
comparisons.
When comparing funds using reporting services, or total return and yield,
investors should take into consideration any relevant differences in funds such
as permitted portfolio composition and methods used to value portfolio
securities and compute offering price.
Advertisements and other sales literature for both classes of Shares may refer
to total return. Total return is the historic change in the value of an
investment in either class of Shares based on the monthly reinvestment of
dividends over a specified period of time.
1030105B (12/93)
VIRGINIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Virginia Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a non-diversified portfolio of
securities which is one of a series of investment portfolios in Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The investment objective of the Fund is to provide current income
exempt from federal regular income tax and the income taxes imposed by the
Commonwealth of Virginia consistent with stability of principal. The Fund
invests primarily in short-term Virginia municipal securities, including
securities of states, territories, and possessions of the United States, which
are not issued by or on behalf of Virginia or its political subdivisions and
financing authorities, which are exempt from the federal regular and Virginia
state income taxes. Institutional Service Shares of the Fund are sold at net
asset value, without a sales load.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THE INSTITUTIONAL SERVICE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in Institutional Service Shares. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information for
Institutional Service Shares and Institutional Shares dated December 31, 1993,
with the Securities and Exchange Commission. The information contained in the
Combined Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 31, 1993
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 4
Variable Rate Demand Notes 4
Participation Interests 4
Municipal Leases 4
Ratings 5
Credit Enhancement 5
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed
Delivery Transactions 5
Temporary Investments 5
Virginia Municipal Securities 6
Standby Commitments 6
Virginia Investment Risks 7
Non-Diversification 7
Investment Limitations 7
Regulatory Compliance 8
FEDERATED MUNICIPAL TRUST INFORMATION 8
- ------------------------------------------------------
Management of Federated Municipal Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Institutional Service
Shares 9
Shareholder Services Plan 9
Administrative Arrangements 9
Administration of the Fund 10
Administrative Services 10
Custodian 10
Transfer Agent and Dividend
Disbursing Agent 10
Legal Counsel 10
Independent Public Accountants 10
Expenses of the Fund and
Institutional Service Shares 10
NET ASSET VALUE 11
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SERVICE SHARES 11
- ------------------------------------------------------
Share Purchases 11
By Wire 11
By Mail 11
Minimum Investment Required 11
What Shares Cost 12
Subaccounting Services 12
Certificates and Confirmations 12
Dividends 12
Capital Gains 12
REDEEMING INSTITUTIONAL SERVICE SHARES 13
- ------------------------------------------------------
Telephone Redemption 13
Written Requests 13
Signatures 13
Receiving Payment 14
Checkwriting 14
Redemption Before Purchase
Instruments Clear 14
Accounts with Low Balances 14
SHAREHOLDER INFORMATION 14
- ------------------------------------------------------
Voting Rights 14
Massachusetts Partnership Law 15
TAX INFORMATION 15
- ------------------------------------------------------
Federal Income Tax 15
Virginia Tax Considerations 16
Other State and Local Taxes 16
PERFORMANCE INFORMATION 16
- ------------------------------------------------------
OTHER CLASSES OF SHARES 17
- ------------------------------------------------------
Financial Highlights--
Institutional Shares 18
FINANCIAL STATEMENTS 19
- ------------------------------------------------------
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS 33
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................................................................. None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................................................. None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee........................................................................................... None
ANNUAL INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)...................................................................... 0.00%
12b-1 Fee.............................................................................................. None
Total Other Expenses (after expense reimbursement)..................................................... 0.55%
Shareholder Servicing Fee....................................................................0.10%
Total Institutional Service Shares Operating Expenses (2).................................... 0.55%
</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 0.40%.
(2) The Total Institutional Service Shares Operating Expenses in the table
above are based on expenses expected during the fiscal year ending October
31, 1994. The Total Institutional Service Shares Operating Expenses were
0.19% for the fiscal year ended October 31, 1993 and were 1.23% absent the
voluntary waiver of the management fee and reimbursement of certain other
operating expenses.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF
THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE
DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL
SERVICE SHARES" AND "FEDERATED MUNICIPAL TRUST INFORMATION." Wire-transferred
redemptions of less than $5,000 may be charged additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <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.
As noted in the table above, the Fund charges no redemption fee for
Institutional Service Shares................................................................. $6 $18
</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.
The information set forth in the foregoing table and example relates only
to Institutional Service Shares of the Fund. The Fund also offers another class
of shares called Institutional Shares. Institutional Service Shares and
Institutional Shares are subject to certain of the same expenses; however,
Institutional Shares are not subject to a Shareholder Servicing Fee. See "Other
Classes of Shares."
VIRGINIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on page 33.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1993*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income 0.003
- ----------------------------------------------------------------------------------------------- -----------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.003)
- ----------------------------------------------------------------------------------------------- -----------------
NET ASSET VALUE, END OF PERIOD $ 1.00
- ----------------------------------------------------------------------------------------------- -----------------
TOTAL RETURN** 0.34%(a)
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------
Expenses 0.19%(b)
- -----------------------------------------------------------------------------------------------
Net investment income 2.67%(b)
- -----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 1.04%(b)
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $45,648
- -----------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from September 16, 1993 (date of initial
public investment) to October 31, 1993.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Trustees ("Trustees") have established two classes of
shares, known as Institutional Service Shares and Institutional Shares. This
prospectus relates only to the Institutional Service Shares of the Fund.
Institutional Service Shares ("Shares") of the Fund are designed for the
investment of moneys held by financial institutions in an agency capacity. A
minimum initial investment of $25,000 over a 90-day period is required. The Fund
may not be a suitable investment for non-Virginia taxpayers or retirement plans
since it invests primarily in Virginia municipal securities.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal regular income tax and the income tax imposed by the Commonwealth of
Virginia consistent with stability of principal. The investment objective cannot
be changed without approval of shareholders. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than Virginia.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of Virginia municipal securities with remaining maturities of 13 months or less
at the time of purchase by the Fund. As a matter of investment policy, which
cannot be changed without approval of shareholders, the Fund invests so that at
least 80% of its annual interest income is exempt from federal regular and
Virginia state income tax or so that at least 80% of its net assets is invested
in obligations, the interest income from which is exempt from federal regular
and Virginia state income tax. The average maturity of the securities in the
Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less.
Unless indicated otherwise, the investment policies may be changed by the
Trustees without the approval of shareholders. Shareholders will be notified
before any material changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued
by or on behalf of the Commonwealth of Virginia and its political subdivisions
and financing authorities, and obligations of other states, territories and
possessions of the United States, including the District of Columbia, and
any political subdivision or financing authority of any of these, the income
from which is, in the opinion of qualified legal counsel, exempt from both
federal regular income tax and the income tax imposed by the Commonwealth of
Virginia. Examples of Virginia municipal securities include, but are not limited
to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
municipal securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days' prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS. The Fund may purchase interests in municipal
securities from financial institutions such as commercial and investment
banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying municipal securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and may be considered to be illiquid. They may take the form
of a lease, an installment purchase contract, a conditional sales contract,
or a participation certificate on any of the above.
RATINGS. The Virginia municipal securities in which the Fund invests must either
be rated in one of the two highest short-term rating categories by one or more
nationally recognized statistical rating organizations ("NRSROs") or be of
comparable quality to securities having such ratings. An NRSRO's two highest
rating categories are determined without regard for sub-categories and
gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc.
("Moody's"), or FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service, Inc.
("Fitch") are all considered rated in one of the two highest short-term rating
categories. The Fund will
follow applicable regulations in determining whether a security rated by more
than one NRSRO can be treated as being in one of the two highest short-term
rating categories; currently, such securities must be rated by two NRSROs in one
of their two highest categories. See "Regulatory Compliance."
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit-enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Trustees, certain restricted securities are considered
liquid. To the extent restricted securities are deemed to be illiquid, the Fund
will limit their purchase, together with other securities considered to be
illiquid, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Virginia
municipal securities on a when-issued or delayed delivery basis. In when-issued
and delayed delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term non-Virginia municipal
tax-exempt obligations or other taxable temporary investments. All temporary
investments will satisfy the same credit quality standards as the Fund's
acceptable investments. See "Ratings" above. Temporary investments include:
notes issued by or on behalf of municipal or corporate issuers; marketable
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; and repurchase agreements (arrangements in which banks,
broker/dealers, and other recognized financial institutions sell the Fund a
temporary investment and agree to repurchase it at a mutually agreed upon time
and price).
Although the Fund is permitted to make taxable temporary investments, there is
no current intention of generating income subject to federal regular income tax
or personal income tax imposed by the Commonwealth of Virginia.
VIRGINIA MUNICIPAL SECURITIES
Virginia municipal securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Virginia municipal securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS
Some securities dealers are willing to sell municipal securities to the Fund
accompanied by their commitments to repurchase the municipal securities prior to
maturity, at the Fund's option, for the amortized cost of the municipal
securities at the time of repurchase. These arrangements are not used to protect
against changes in the market value of municipal securities. They permit the
Fund, however, to remain fully invested and still provide liquidity to satisfy
redemptions. The cost of municipal securities accompanied by these "standby"
commitments could be greater than the cost of municipal securities without such
commitments. Standby commitments are not marketable or otherwise assignable and
have value only to the Fund. The default or bankruptcy of a securities dealer
giving such a commitment would not affect the quality of the municipal
securities purchased. However, without a standby commitment, these securities
could be more difficult to sell. The Fund enters into standby commitments only
with those dealers whose credit the investment adviser believes to be of high
quality.
VIRGINIA INVESTMENT RISKS
Yields on Virginia municipal securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the Commonwealth of Virginia or
its municipalities could impact the Fund's portfolio. The ability of the Fund to
achieve its investment objective also depends on the continuing ability of the
issuers of Virginia municipal securities and demand features for such
securities, or the credit enhancers of either, to meet their obligations for the
payment of interest and principal when due. However, Virginia's substantial
resources and conservative approach to financial operations and debt management
provide superior protection to bondholders. Additionally,
recovery from the recession appears to be underway in the Commonwealth, with
revenues exceeding estimates and employment increasing slightly.
Investing in Virginia municipal securities which meet the Fund's quality
standards may not be possible if the Commonwealth of Virginia or its
municipalities do not maintain their high quality, short-term credit ratings. In
addition, certain Virginia constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could result
in adverse consequences affecting Virginia municipal securities. An expanded
discussion of the current economic risks associated with the purchase of
Virginia municipal securities is contained in the Combined Statement of
Additional Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified investment portfolio because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, with
regard to at least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following investment limitation, however, can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective.
The Fund will not invest more than 5% of its total assets in industrial
development bonds or other municipal securities when the payment of principal
and interest is the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations, including the
operation of any predecessor.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Combined Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which regulates
money market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security
as having received the requisite short-term ratings by NRSROs, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST INFORMATION
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MANAGEMENT OF FEDERATED MUNICIPAL TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of
Trustees is responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for the voluntary waiver of the advisory
fee by the adviser, the adviser may voluntarily waive some or all of the
advisory fee. This does not include reimbursement to the Fund of any
expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The adviser can terminate this voluntary waiver
of expenses at any time at its sole discretion. The adviser has also
undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan (the
"Services Plan") with respect to Institutional Service Shares. Under the
Services Plan, financial institutions will enter into shareholder service
agreements with the Fund to provide administrative support services to their
customers who from time to time may be owners of record or beneficial owners of
Institutional Service Shares. These administrative services may include, but are
not limited to, the provision of personal service and maintenance of shareholder
accounts. In return for providing these support services, a financial
institution may receive payments from the Fund at a rate not exceeding 0.10% of
the average daily net assets of the Institutional Service Shares beneficially
owned by the financial institution's customers for whom it is holder of record
or with whom it has a servicing relationship.
ADMINISTRATIVE ARRANGEMENTS. In addition to the fees paid by the distributor to
financial institutions under the Plan as described above, the distributor may
also pay financial institutions a fee with respect to the average net asset
value of Shares held by their customers for providing administrative services.
The rate of such fee will be determined by the average net asset value of the
shares held by their customers in the Institutional Service Shares class of the
Fund. This fee is in addition to amounts paid under the Plan and, if paid, will
be reimbursed by the adviser and not the Fund.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary
of Federated Investors, provides the Fund with the administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services, Inc., provides these at approximate cost.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND AND INSTITUTIONAL SERVICE SHARES
Holders of Shares pay their allocable portion of Fund and Trust expenses.
The Trust expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and
state securities authorities; Trustees' fees; auditors' fees; the cost of
meetings of Trustees; legal fees of the Trust; association membership dues; and
such non-recurring and extraordinary items as may arise.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise.
At present, no expenses are allocated to the Shares as a class. However, the
Trustees reserve the right to allocate certain other expenses to holders of
Shares as it deems appropriate ("Class Expenses"). In any case, Class Expenses
would be limited to: transfer agent fees as identified by the transfer agent as
attributable to holders of Shares; printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders; registration fees paid to the Securities
and Exchange Commission and registration fees paid to state securities
commissions; expenses related to administrative personnel and services as
required to support holders of Shares; legal fees relating solely to Shares; and
Trustees' fees incurred as a result of issues relating solely to Shares.
NET ASSET VALUE
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The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per Share is determined by adding the interest of the Shares in the value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding.
The Fund, of course, cannot guarantee that its net asset value will always
remain at $1.00 per Share.
INVESTING IN INSTITUTIONAL SERVICE SHARES
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SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open for business. Shares may be purchased either by
wire or by mail. The Fund reserves the right to reject any purchase request.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) that same day. Federal funds should be wired as follows: State Street Bank
and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
Virginia Municipal Cash Trust--Institutional Service Shares; Fund Number (this
number can be found on the account statement or by contacting the Fund); Group
Number or Order Number; Nominee or Institution Name; and ABA Number 011000028.
Shares cannot be purchased by wire on days on which the New York Stock Exchange
is closed and on federal holidays restricting wire transfers.
BY MAIL. To purchase Shares by mail, send a check made payable to Virginia
Municipal Cash Trust-- Institutional Service Shares to the Trust's transfer
agent, Federated Services Company, c/o State Street Bank and Trust Company, P.O.
Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered
received when payment by check is converted by State Street Bank into federal
funds. This is normally the next business day after State Street Bank receives
the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund. Individual accounts
established through a bank or broker may be subject to a different minimum
investment requirement.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a bank or broker may be charged an additional service fee by that
bank or broker.
The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Financial
institutions holding Shares in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the financial institution with regard to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the day after the check is converted by , upon
instruction of the transfer agent, into federal funds. Dividends are
automatically reinvested on payment dates in additional Shares unless cash
payments are requested on an application or by contacting the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses,
if any, could result in a decrease in dividends. If, for some extraordinary
reason, the Fund realizes net long-term or short-term capital gains, it will
distribute them at least once every 12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
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The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund. Redemption
requests received before 12:00 noon (Eastern time) are not entitled to that
day's dividend. A daily dividend will be paid on Shares redeemed if the
redemption request is received after 12:00 noon (Eastern time). However, the
proceeds are not wired until the following business day. If, at any time, the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders will be promptly notified.
An authorization form permitting the Fund to accept redemption requests by
telephone must first be completed. Authorization forms and information on this
service are available from Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, shareholders may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as Written Requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name and class of shares,
his account number, and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
CHECKWRITING. At the shareholder's request, State Street Bank will establish a
checking account for redeeming Shares. For further information, contact
Federated Securities Corp.
A fee may be charged for this service. With a Fund checking account, Shares may
be redeemed simply by writing a check. The redemption will be made at the net
asset value on the date that State Street Bank presents the check to the Fund. A
check may not be written to close an account. If a shareholder wishes to redeem
Shares and have the proceeds available, a check may be written and negotiated
through the shareholder's bank. Checks should never be sent to State Street Bank
to redeem Shares. Cancelled checks are returned to the shareholder each month.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, the proceeds from the redemption of those
Shares are not available, and the Shares may not be exchanged, until the Fund or
its agents are reasonably certain that the purchase check has cleared, which
could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
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VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of all series of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for such
acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument that the
Trust or its Trustees enter into or sign.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
TAX INFORMATION
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FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, 75% of the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
VIRGINIA TAX CONSIDERATIONS
Under existing Virginia law, distributions made by the Fund will not be subject
to Virginia individual or corporate income taxes to the extent that such
distributions are attributable to interest earned on
(i) obligations issued by or on behalf of the Commonwealth of Virginia or any
political subdivision thereof; or (ii) obligations issued by a territory or
possession of the United States or any political subdivision thereof which
federal law exempts from state income taxes. Conversely, to the extent that
distributions made by the Fund are attributable to other types of obligations,
such distributions will not be exempt from Virginia individual or corporate
income taxes.
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from regular state income taxes in
states other than Virginia or from personal property taxes. State laws differ on
this issue and shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
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From time to time the Fund advertises its yield, effective yield, and
tax-equivalent yield for Institutional Service Shares.
The yield of Institutional Service Shares represents the annualized rate of
income earned on an investment in Institutional Service Shares over a seven-day
period. It is the annualized dividends earned during the period on the
investment, shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but, when annualized, the income earned by an
investment in Institutional Service Shares is assumed to be reinvested daily.
The effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. The tax-equivalent yield of
Institutional Service Shares is calculated similarly to the yield, but is
adjusted to reflect the taxable yield that the Institutional Service Shares
would have had to earn to equal their actual yield, assuming a specific tax
rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Institutional Service Shares after reinvesting all income
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
Yield, effective yield, and tax-equivalent yield will be calculated separately
for Institutional Service Shares and Institutional Shares. Because Institutional
Service Shares are subject to a shareholder services plan fee, the yield, the
effective yield, and the tax-equivalent yield for Institutional Shares will
exceed the yield, the effective yield, and the tax-equivalent yield for
Institutional Service Shares for the same period.
From time to time, the Fund may advertise the performance of Institutional
Service Shares using certain reporting services and/or compare the performance
of Institutional Service Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Shares are sold to accounts for which financial institutions act
in a fiduciary capacity. Institutional Shares are sold at net asset value.
Investments in Institutional Shares are also subject to a minimum initial
investment of $25,000.
Institutional Service Shares are subject to a shareholder services plan fee
of.10 of 1% of the Institutional Service Shares' average daily net assets.
Institutional Shares are not subject to a shareholder services plan fee.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares of the Fund
than from another class of shares depending upon which class of shares of the
Fund is sold. The distributor may pay an administrative fee to a financial
institution or broker for administrative services provided to the Institutional
Service Shares class, but such a fee will not be an expense of the class but
will be reimbursed to the distributor by the investment adviser. Administrative
fees are not paid in conjunction with Institutional Shares. The difference
between class expenses and distribution expenses borne by shares of each
respective class will cause the amount of dividends payable to a particular
class of shares to exceed the amount of dividends payable to another class of
shares whose distribution expenses are greater. Thus, because Institutional
Shares are not subject to a shareholder services plan fee, the Institutional
Shares' dividends will exceed the dividends paid by the Institutional Service
Shares.
The stated advisory fee is the same for all classes of shares.
VIRGINIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on page 33.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1993*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income 0.003
- ----------------------------------------------------------------------------------------------- -----------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.003)
- ----------------------------------------------------------------------------------------------- -----------------
NET ASSET VALUE, END OF PERIOD $ 1.00
- ----------------------------------------------------------------------------------------------- -----------------
TOTAL RETURN** 0.35%(a)
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------
Expenses 0.09%(b)
- -----------------------------------------------------------------------------------------------
Net investment income 2.68%(b)
- -----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 1.04%(b)
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 7,210
- -----------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from September 16, 1993 (date of initial
public investment) to October 31, 1993.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P OR
PRINCIPAL FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- --------------------------------------------------------------------- ----------- --------------
SHORT-TERM MUNICIPAL SECURITIES--104.3%
- ------------------------------------------------------------------------------------
VIRGINIA--97.7%
---------------------------------------------------------------------
$ 1,000,000 Alexandria, VA, IDA Weekly VRDNs (American Red Cross)/(Sanwa Bank,
Ltd. LOC) P-1 $ 1,000,000
---------------------------------------------------------------------
2,500,000 Alexandria, VA, Redevelopment and Housing Authority Weekly VRDNs
(Crystal City Apartments)/(Safeco Insurance Co. of America
Insured)/(Subject AMT) A-1+ 2,500,000
---------------------------------------------------------------------
500,000 Amelia County, VA, IDA Weekly VRDNs (Series 1991)/ (Chambers Waste
Systems)/(NationsBank of North Carolina N.A. LOC)/(Subject to AMT) VMIG1 500,000
---------------------------------------------------------------------
2,000,000 Arlington County, VA, 3.60% BANs, 8/1/94 SP-1+ 2,013,182
---------------------------------------------------------------------
2,200,000 Arlington County, VA, Weekly VRDNs (Ballston Public
Parking)/(Citibank N.A. LOC) A-1 2,200,000
---------------------------------------------------------------------
1,440,000 Chesapeake Bay Bridge & Tunnel District, VA, General
Resolution Revenue Bonds Weekly VRDNs (P-Floats)
(Series 1991)/(MBIA Insured) VMIG1 1,440,000
---------------------------------------------------------------------
2,000,000 Chesapeake, VA, IDA Weekly VRDNs (Series 1988)/ (Sumitomo Machinery
Corp. of America)/(Sumitomo Bank, Ltd. LOC)/(Subject to AMT) VMIG1 2,000,000
---------------------------------------------------------------------
2,050,000 Chesterfield County, VA, IDA, 2.90% CP (Series 1987A)/ (Virginia
Electric Power Co.), Mandatory Tender 11/15/93 A-1 2,050,000
---------------------------------------------------------------------
1,440,000 Fairfax County, VA, EDA Weekly VRDNs (Series 1993)/
(Future Homemakers of America)/(NationsBank of Virginia
N.A. LOC) P-1 1,440,000
---------------------------------------------------------------------
1,050,000 Fairfax County, VA, EDA Weekly VRDNs (William Byrd
Press)/(NationsBank of Virginia N.A. LOC) VMIG1 1,050,000
---------------------------------------------------------------------
2,000,000 Fairfax County, VA, Housing Authority Weekly VRDNs (Chase Commons
Associates)/(Bankers Trust Company LOC) VMIG1 2,000,000
---------------------------------------------------------------------
2,000,000 Fairfax County, VA, IDA Weekly VRDNs (Fairfax Hospital System,
Inc.)/(Dai-Ichi Kangyo Bank, Ltd. LOC) A-1+ 2,000,000
---------------------------------------------------------------------
2,340,000 Fairfax County, VA, Water Authority Revenue Bonds Weekly VRDNs
(P-FLOATS)/(Series 1992) VMIG1 2,340,000
---------------------------------------------------------------------
3,000,000 Falls Church, VA, IDA, 2.65% Semi-Annual TOBs (Series 1985)/(Kaiser
Permanente), Optional Tender 5/1/94 A-1+ 3,000,000
---------------------------------------------------------------------
1,300,000 Greensville County, VA, IDA Daily VRDNs (Purdue Farms, Inc.)/(Morgan
Guaranty Trust Co. LOC)/(Subject to AMT) A-1+ 1,300,000
---------------------------------------------------------------------
4,000,000 Halifax, VA, IDA, MMMs, PCR, 3.10% CP (Virginia Electric Power
Co.)/(Subject to AMT), Mandatory Tender
1/25/94 A-1+ 4,000,000
---------------------------------------------------------------------
1,223,000 Norfolk, VA, Redevelopment and Housing Authority Weekly VRDNs (Series
1990)/(St. Paul's Associates, L.P.)/
(NationsBank of Virginia N.A. LOC) P-1 1,223,000
---------------------------------------------------------------------
1,600,000 Peninsula Port Authority, VA, Daily VRDNs
(Shell Oil Co.) AAA 1,600,000
---------------------------------------------------------------------
1,000,000 Peninsula Port Authority of VA Weekly VRDNs (Series 1993)/(Allied
Signal, Inc. Guaranty) A-1 1,000,000
---------------------------------------------------------------------
2,980,000 Richmond, VA, 3.00% SB, 1/15/94 AA 2,984,053
---------------------------------------------------------------------
3,000,000 Richmond, VA, Redevelopment and Housing Authority Weekly VRDNs
(Series 1989)/(Belmont Apartments)/
(NationsBank of North Carolina N.A. LOC) P-1 3,000,000
---------------------------------------------------------------------
2,000,000 Suffolk, VA, Redevelopment and Housing Authority Weekly VRDNs
(Terry/Peterson Development Corp.)/
(NationsBank of Virginia N.A. LOC) P-1 2,000,000
---------------------------------------------------------------------
3,000,000 Virginia Education Loan Authority, 2.85% TOBs (Series
1993H)/(Escrowed in Treasuries)/(Subject to AMT), Mandatory Tender
2/24/94 VMIG1 3,000,000
---------------------------------------------------------------------
2,000,000 Virginia Housing Development Authority Weekly VRDNs (Series
1987A)/(AHC Service Corp.)/(Mitsubishi Bank, Ltd. LOC) P-1 2,000,000
---------------------------------------------------------------------
4,000,000 Virginia State, HDA, 2.95% Semi-Annual TOBs (Series 1992B)/(Stem
II)/(Subject to AMT), Mandatory Tender
3/24/94 A-1+ 4,001,794
--------------------------------------------------------------------- --------------
TOTAL 51,642,029
--------------------------------------------------------------------- --------------
PUERTO RICO--6.6%
---------------------------------------------------------------------
3,500,000 Puerto Rico Commonwealth, 3.00% TRANS (Series 1993A), 7/29/94 SP-1+ 3,510,041
--------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (AT AMORTIZED COST) $ 55,152,070\
--------------------------------------------------------------------- --------------
</TABLE>
* See Notes to Portfolio of Investments.
\ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($52,858,271) at
October 31, 1993.
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
AMT--Alternative Minimum Tax
BANs--Bond Anticipation Notes
CP--Commercial Paper
EDA--Economic Development Authority
HDA--Hospital Development Authority
IDA--Industrial Development Authority
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance
MMMs--Money Market Municipals
PCR--Pollution Control Revenue
SB--Serial Bond
TOBs--Tender Option Bonds
TRANs--Tax and Revenue Anticipation Notes
VRDNs--Variable Rate Demand Notes
VIRGINIA MUNICIPAL CASH TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
S&P
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S
Moody's short-term ratings are designated Moody's Investment Grade (MIG OR VMIG
(see below)). The purpose of the MIG of VMIG ratings is to provide investors
with a simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
FITCH
Fitch's short-term ratings place greater emphasis on the existence of liquidity
necessary to meet the issuer's obligations in a timely manner.
F-1 Strongest degree of assurance for timely payment. Those issues determined to
provide exceptionally strong credit quality are given a plus (+)
designation.
F-2 Notes reflecting a degree of assurance for timely payment only slightly less
in degree than the highest category.
VARIABLE RATE DEMAND NOTES (VRDNS)
AND
TENDER OPTION BONDS (TOBS)
RATINGS
S&P
Standard & Poor's assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-1+, AA/A-1+, and A/A-1. (The
definitions for the long-term and the short-term ratings are provided below.)
MOODY'S
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity.
In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the
first representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the second representing an evaluation of
the degree of risk associated with the demand feature. The VMIG rating can be
assigned a 1 or 2 designation using the same definitions described above for the
MIG rating.
FITCH
Fitch usually assigns two ratings to long-term debt issues that include
provisions for a variable rate demand feature. The long-term rating addresses
the ability of the obligor to pay debt service and the short-term rating
addresses the timely payment of the demand feature. Examples of rating
designations are as follows: AAA/F-1+, AA/F-1+, and A/F-1. (The definitions for
the long-term and short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
S&P
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."
MOODY'S
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
The following is an explanation of the Fitch ratings. These ratings are not
referenced in the Portfolio of Investments.
FITCH
F-1 Issues assigned this rating reflect a strong degree of assurance for timely
payment. Those issuers determined to possess the strongest degree of
assurance for timely payment are denoted with a plus (+) sign designation.
F-2 Issuers carrying this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the "F-1+" and
"F-1" categories.
LONG-TERM DEBT RATINGS
(INVESTMENT GRADE)
S&P
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
principal and interest than debt rated in higher ratings categories.
MOODY'S
AAA Bonds that are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large margin and
principal is secure. While the various protective elements are likely to
change, such changes which can be foreseen are most unlikely to impair
the fundamentally strong position of such issues.
AA Bonds that are rated AA are judged to be of high quality by all
standards. Together with the AAA group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in AAA securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in AAA securities.
A Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present that suggest a susceptibility to impairment some time in
the future.
BAA Bonds which are rated BAA are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
FITCH
AAA Bonds that are rated AAA are of the highest credit quality. The obligor
has an exceptionally strong ability to pay debt service.
AA Bonds that are rated AA are of very high quality. The obligor has a very
strong ability to pay debt service. Debt rated in this category may also
have a (+) or (-) sign with a rating to indicate the relative position
within the rating category.
A Bonds are considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
NR indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P, Moody's, or Fitch with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated in one of the two highest short-term ratings
categories by a nationally recognized statistical ratings organization.
NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by
Fitch.
NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch.
NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "A" by Standard & Poor's, Moody's, or Fitch.
NR(4) The underlying issuer/obligor/gurantor has other outstanding long-term
debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by
Fitch.
VIRGINIA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $ 55,152,070
- --------------------------------------------------------------------------------------------------
Cash 411,467
- --------------------------------------------------------------------------------------------------
Interest receivable 200,207
- --------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 171,923
- -------------------------------------------------------------------------------------------------- --------------
Total assets 55,935,667
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------------
Payable for investments purchased $ 3,000,000
- -----------------------------------------------------------------------------------
Dividends payable 35,508
- -----------------------------------------------------------------------------------
Accrued expenses and other liabilities 41,888
- ----------------------------------------------------------------------------------- -------------
Total liabilities 3,077,396
- -------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 52,858,271 shares of beneficial interest outstanding $ 52,858,271
- -------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- --------------------------------------------------------------------------------------------------
Institutional Service Shares ($45,647,769 / 45,647,769 shares
of beneficial interest outstanding) $1.00
- -------------------------------------------------------------------------------------------------- --------------
Institutional Shares ($7,210,502 / 7,210,502 shares of beneficial interest outstanding) $1.00
- -------------------------------------------------------------------------------------------------- --------------
(See Notes which are an integral part of the Financial Statements)
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 16, 1993 (DATE OF INITIAL PUBLIC INVESTMENT) TO
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 148,599
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 20,894
- -----------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 24,647
- -----------------------------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 13,246
- -----------------------------------------------------------------------------------------
Shareholder services fees 4,695
- ----------------------------------------------------------------------------------------- ---------
Total expenses 63,482
- -----------------------------------------------------------------------------------------
Deduct--
- -----------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 20,894
- ------------------------------------------------------------------------------
Reimbursement of other operating expenses (Note 5) 33,250 54,144
- ------------------------------------------------------------------------------ --------- ---------
Net expenses 9,338
- ---------------------------------------------------------------------------------------------------- -----------
Net investment income $ 139,261
- ---------------------------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements)
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
10/31/93*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------------------------------------------
Net investment income $ 139,261
- ------------------------------------------------------------------------------------------------ ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ------------------------------------------------------------------------------------------------
Institutional Service Shares (124,823)
- ------------------------------------------------------------------------------------------------
Institutional Shares (14,438)
- ------------------------------------------------------------------------------------------------ ----------------
Change in net assets from distributions to shareholders (139,261)
- ------------------------------------------------------------------------------------------------ ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- ------------------------------------------------------------------------------------------------
Proceeds from sale of shares 122,368,804
- ------------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 95,476
- ------------------------------------------------------------------------------------------------
Cost of shares redeemed (69,606,009)
- ------------------------------------------------------------------------------------------------ ----------------
Change in net assets from Fund share transactions 52,858,271
- ------------------------------------------------------------------------------------------------ ----------------
Change in net assets 52,858,271
- ------------------------------------------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------------------------------------------
Beginning of period --
- ------------------------------------------------------------------------------------------------ ----------------
End of period $ 52,858,271
- ------------------------------------------------------------------------------------------------ ----------------
*The period from September 16, 1993 (date of initial public investment) to October 31, 1993.
(See Notes which are an integral part of the Financial Statements)
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company
with several portfolios. The financial statements included herein are only those
of Virginia Municipal Cash Trust (the "Fund"). The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
Effective September 16, 1993, the Fund provides two classes of shares
("Institutional Service Shares" and "Institutional Shares"). Institutional
Shares are identical in all respects to Institutional Service Shares except that
Institutional Service Shares are sold pursuant to a shareholder services plan of
up to .10 of 1% of average daily net assets of the Institutional Service Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best method currently
available for valuing portfolio securities is amortized cost. The Fund's use of the amortized cost method to
value its portfolio securities is conditioned on its compliance with Rule 2a-7 under the Investment Company
Act of 1940.
Since the Fund may invest a substantial portion of its assets in issuers located in one state, it will be more
susceptible to factors adversely affecting issuers of that state than would be a comparable general tax-exempt
mutual fund. In order to reduce the risk associated with such factors, at October 31, 1993, 48.3% of the
securities in the portfolio of investments were backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies of various financial institutions. The
aggregate percentages by financial institutions ranged from 1.8% to 10.4% of total investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest earned net of
premium, and original issue discount as required by the Internal Revenue Code.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal Revenue Code (the "Code")
applicable to investment companies and to distribute to shareholders each year all of its net income.
Accordingly, no provision for federal tax is necessary. Dividends paid by the Fund representing net interest
received on tax-exempt municipal securities are not includable by shareholders as gross income for federal
income tax purposes because the Fund intends to meet certain requirements of the Code applicable to regulated
investment companies which will enable the Fund to pay exempt-interest dividends. The portion of such
interest, if any, earned on private activity bonds issued after August 7, 1986, may be considered a tax
preference item to shareholders for the purpose of computing the alternative minimum tax.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery
transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objective and policies and not for the purpose of
investment leverage. The Fund will record a when-issued security and the related liability on the trade date.
Until the securities are received and paid for, the Fund will maintain security positions such that sufficient
liquid assets will be available to make payment for the securities purchased. Securities purchased on a
when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement
date.
E. EXPENSES--Expenses of the Fund (other than shareholder servicing fees) and waivers and reimbursements, if any,
are allocated to each class of shares based on its relative daily average net assets for the period. Expenses
incurred by the Trust which do not specifically relate to an individual fund are allocated among all funds
based on a fund's relative net asset value size or as deemed appropriate by the administrator.
F. OTHER--Investment transactions are accounted for on the date of the transaction.
</TABLE>
(3) DIVIDENDS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash or in additional
shares at the net asset value on the payable date.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1993, capital paid-in aggregated $52,858,271.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR
ENDED
INSTITUTIONAL SERVICE SHARES 10/31/93**
<S> <C>
Shares outstanding, beginning of period --
- ---------------------------------------------------------------------------------------------------
Shares sold 113,204,248
- ---------------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 95,476
- ---------------------------------------------------------------------------------------------------
Shares redeemed (67,651,955)
- --------------------------------------------------------------------------------------------------- -------------
Shares outstanding, end of period 45,647,769
- --------------------------------------------------------------------------------------------------- -------------
** The period from September 16, 1993 (date of initial public investment) to October 31, 1993.
</TABLE>
<TABLE>
<CAPTION>
YEAR
ENDED
INSTITUTIONAL SHARES 10/31/93**
Shares outstanding, beginning of period --
<S> <C>
- ---------------------------------------------------------------------------------------------------
Shares sold 9,164,556
- ---------------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared --
- ---------------------------------------------------------------------------------------------------
Shares redeemed (1,954,054)
- --------------------------------------------------------------------------------------------------- -------------
Shares outstanding, end of period 7,210,502
- --------------------------------------------------------------------------------------------------- -------------
**The period from September 16, 1993 (date of initial public investment) to October 31, 1993.
</TABLE>
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Management, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to .40 of 1% of the Fund's
average daily net assets. Adviser has voluntarily agreed to waive a portion of
its fee. Adviser can modify or terminate this voluntary waiver of expense at any
time at its sole discretion. For the period from September 16, 1993 (date of
initial public investment) to October 31, 1993, the investment advisory fee
amounted to $20,894, all of which was voluntarily waived in accordance with such
undertaking. In addition, Adviser voluntarily reimbursed $33,250 of the Fund's
other operating expenses.
Organizational expenses ($35,000) were borne initially by the Adviser. The Fund
has agreed to reimburse the Adviser during the five-year period following the
date the Trust's portfolio became effective.
During the fiscal year ended October 31, 1993, the Fund engaged in purchase and
sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7
of the Investment Company Act of 1940 amounting to $41,592,120 and $34,809,000,
respectively. These purchases and sales were conducted on an arms-length basis
insofar as they were transacted for cash consideration only, at independent
current market prices and without brokerage commission, fee or other
remuneration.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Certain Officers and Trustees of the
Trust are Officers and Directors of the above corporations.
(6) CURRENT CREDIT RATINGS
Current credit ratings and related notes are unaudited.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST (Virginia Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of Virginia
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio investments,
as of October 31, 1993, the related statement of operations for the year then
ended, the statement of changes in net assets, and the financial highlights (see
pages 2 and 18 of the prospectus) for the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of October 31, 1993,
by correspondence with the custodian and broker. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Virginia Municipal Cash Trust, an investment portfolio of Federated Municipal
Trust, as of October 31, 1993, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for the
periods presented in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania
December 13, 1993
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ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Virginia Municipal Cash Trust
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
VIRGINIA MUNICIPAL
CASH TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Non-Diversified Portfolio of
Federated Municipal Trust,
an Open-End Management
Investment Company
December 31, 1993
3080501A-ISS (12/93)
VIRGINIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Virginia Municipal Cash Trust (the "Fund") offered
by this prospectus represent interests in a non-diversified portfolio of
securities which is one of a series of investment portfolios in Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The investment objective of the Fund is to provide current income
exempt from federal regular income tax and the income taxes imposed by the
Commonwealth of Virginia consistent with stability of principal. The Fund
invests primarily in short-term Virginia municipal securities including
securities of states, territories, and possessions of the United States which
are not issued by or on behalf of Virginia or its political subdivisions and
financing authorities, which are exempt from the federal regular and Virginia
state income taxes. Institutional Shares of the Fund are sold at net asset
value, without a sales load.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THE INSTITUTIONAL SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in Institutional Shares. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for
Institutional Shares and Institutional Service Shares dated December 31, 1993,
with the Securities and Exchange Commission. The information contained in the
Combined Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 31, 1993
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Variable Rate Demand Notes 4
Participation Interests 4
Municipal Leases 4
Ratings 4
Credit Enhancement 5
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed
Delivery Transactions 5
Temporary Investments 5
Virginia Municipal Securities 6
Standby Commitments 6
Virginia Investment Risks 6
Non-Diversification 7
Investment Limitations 7
Regulatory Compliance 8
FEDERATED MUNICIPAL TRUST INFORMATION 8
- ------------------------------------------------------
Management of Federated Municipal Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Institutional Shares 9
Administration of the Fund 9
Administrative Services 9
Custodian 9
Transfer Agent and Dividend
Disbursing Agent 9
Legal Counsel 9
Independent Public Accountants 9
Expenses of the Fund and
Institutional Shares 9
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 10
- ------------------------------------------------------
Share Purchases 10
By Wire 10
By Mail 10
Minimum Investment Required 10
What Shares Cost 11
Subaccounting Services 11
Certificates and Confirmations 11
Dividends 11
Capital Gains 11
REDEEMING INSTITUTIONAL SHARES 12
- ------------------------------------------------------
Telephone Redemption 12
Written Requests 12
Signatures 12
Receiving Payment 13
Redemption Before Purchase
Instruments Clear 13
Accounts with Low Balances 13
SHAREHOLDER INFORMATION 13
- ------------------------------------------------------
Voting Rights 13
Massachusetts Partnership Law 13
TAX INFORMATION 14
- ------------------------------------------------------
Federal Income Tax 14
Virginia Tax Considerations 15
Other State and Local Taxes 15
PERFORMANCE INFORMATION 15
- ------------------------------------------------------
OTHER CLASSES OF SHARES 16
- ------------------------------------------------------
Financial Highlights--Institutional
Service Shares 17
FINANCIAL STATEMENTS 18
- ------------------------------------------------------
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS 32
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................................................................. None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................................................. None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee........................................................................................... None
ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)...................................................................... 0.00%
12b-1 Fee.............................................................................................. None
Other Expenses (after expense reimbursement)........................................................... 0.45%
Total Institutional Shares Operating Expenses (2)............................................ 0.45%
</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 0.40%.
(2) The Total Institutional Shares Operating Expenses in the table above are
based on expenses expected during the fiscal year ending October 31, 1994.
The Total Institutional Shares Operating Expenses were 0.09% and were 1.13%
absent the voluntary waiver of the management fee and reimbursement of
certain other operating expenses.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SHARES OF THE
FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF
THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SHARES" AND
"FEDERATED MUNICIPAL TRUST INFORMATION." Wire-transferred redemptions of less
than $5,000 may be charged additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <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. As noted in the table above, the Fund charges
no redemption fee for Institutional Shares................................................... $5 $14
</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.
The information set forth in the foregoing table and example relates only
to Institutional Shares of the Fund. The Fund also offers another class of
shares called Institutional Service Shares. Institutional Shares and
Institutional Service Shares are subject to certain of the same expenses;
however, Institutional Service Shares are subject to a Shareholder Servicing Fee
of 0.10%. See "Other Classes of Shares."
VIRGINIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on page 32.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1993*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- ------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------
Net investment income 0.003
-------
- ------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.003)
-------
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00
-------
- ------------------------------------------------------------------------------------------------
TOTAL RETURN** 0.35%(a)
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------
Expenses 0.09%(b)
- ------------------------------------------------------------------------------------------------
Net investment income 2.68%(b)
- ------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 1.04%(b)
- ------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $7,210
- ------------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from September 16, 1993 (date of initial
public investment) to October 31, 1993.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a)Cumulative total return.
(b)Computed on an annualized basis.
(c)This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Trustees (the "Trustees") have established two classes
of shares, known as Institutional Shares and Institutional Service Shares. This
prospectus relates only to Institutional Shares of the Fund.
Institutional Shares ("Shares") of the Fund are designed for the investment of
moneys held by financial institutions in a fiduciary capacity. A minimum initial
investment of $25,000 over a 90-day period is required. The Fund may not be a
suitable investment for non-Virginia taxpayers or retirement plans since it
invests primarily in Virginia municipal securities.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal regular income tax and the income tax imposed by the Commonwealth of
Virginia consistent with stability of principal. The investment objective cannot
be changed without approval of shareholders. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than Virginia.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of Virginia municipal securities with remaining maturities of 13 months or less
at the time of purchase by the Fund. As a matter of investment policy which
cannot be changed without approval of shareholders, the Fund invests so that at
least 80% of its annual interest income is exempt from federal regular and
Virginia state income tax or so that at least 80% of its net assets is invested
in obligations, the interest income from which is exempt from federal regular
and Virginia state income tax. The average maturity of the securities in the
Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less.
Unless indicated otherwise, the investment policies may be changed by the
Trustees without the approval of shareholders. Shareholders will be notified
before any material changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued
by or on behalf of the Commonwealth of Virginia and its political subdivisions
and financing authorities, and obligations of other states, territories and
possessions of the United States, including the District of Columbia, and any
political subdivision or financing authority of any of these, the income from
which is, in theopinion of qualified legal counsel, exempt from both
federal regular income tax and the income tax imposed by the Commonwealth of
Virginia. Examples of Virginia municipal securities include, but are not
limited to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
municipal securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days' prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS. The Fund may purchase interests in municipal
securities from financial institutions such as commercial and investment
banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying municipal securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and may be considered to be illiquid. They may take the form
of a lease, an installment purchase contract, a conditional sales contract,
or a participation certificate on any of the above.
RATINGS. The Virginia municipal securities in which the Fund invests must
either be rated in one of the two highest short-term rating categories by one or
more nationally recognized statistical rating organizations ("NRSROs") or be of
comparable quality to securities having such ratings. An NRSRO's two highest
rating categories are determined without regard for sub-categories and
gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc.
("Moody's"), or FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service, Inc.
("Fitch") are all considered rated in one of the two highest short-term rating
categories. The Fund will follow applicable regulations in determining whether a
security rated by more than one
NRSRO can be treated as being in one of the two highest short-term rating
categories; currently, such securities must be rated by two NRSROs in one of
their two highest categories. See "Regulatory Compliance."
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit-enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Trustees, certain restricted securities are considered
liquid. To the extent restricted securities are deemed to be illiquid, the Fund
will limit their purchase, together with other securities considered to be
illiquid, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Virginia
municipal securities on a when-issued or delayed delivery basis. In when-issued
and delayed delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term non-Virginia municipal
tax-exempt obligations or other taxable, temporary investments. All temporary
investments will satisfy the same credit quality standards as the Fund's
acceptable investments. See "Ratings" above. Temporary investments include:
notes issued by or on behalf of municipal or corporate issuers; marketable
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; and repurchase agreements (arrangements in which banks,
broker/dealers, and other recognized financial institutions sell the Fund a
temporary investment and agree to repurchase it at a mutually agreed upon time
and price).
Although the Fund is permitted to make taxable temporary investments, there is
no current intention of generating income subject to federal regular income tax
or personal income tax imposed by the Commonwealth of Virginia.
VIRGINIA MUNICIPAL SECURITIES
Virginia municipal securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Virginia municipal securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS
Some securities dealers are willing to sell municipal securities to the Fund
accompanied by their commitments to repurchase the municipal securities prior to
maturity, at the Fund's option, for the amortized cost of the municipal
securities at the time of repurchase. These arrangements are not used to protect
against changes in the market value of municipal securities. They permit the
Fund, however, to remain fully invested and still provide liquidity to satisfy
redemptions. The cost of municipal securities accompanied by these "standby"
commitments could be greater than the cost of municipal securities without such
commitments. Standby commitments are not marketable or otherwise assignable and
have value only to the Fund. The default or bankruptcy of a securities dealer
giving such a commitment would not affect the quality of the municipal
securities purchased. However, without a standby commitment, these securities
could be more difficult to sell. The Fund enters into standby commitments only
with those dealers whose credit the investment adviser believes to be of high
quality.
VIRGINIA INVESTMENT RISKS
Yields on Virginia municipal securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the Commonwealth of Virginia or
its municipalities could impact the Fund's portfolio. The ability of the Fund to
achieve its investment objective also depends on the continuing ability of the
issuers of Virginia municipal securities and demand features for such
securities, or the credit enhancers of either, to meet their obligations for the
payment of interest and principal when due. However, Virginia's substantial
resources and conservative approach to financial operations and debt management
provide superior protection to bondholders. Additionally,
recovery from the recession appears to be underway in the Commonwealth, with
revenues exceeding estimates and employment increasing slightly.
Investing in Virginia municipal securities which meet the Fund's quality
standards may not be possible if the Commonwealth of Virginia or its
municipalities do not maintain their high quality, short-term credit ratings. In
addition, certain Virginia constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could result
in adverse consequences affecting Virginia municipal securities. An expanded
discussion of the current economic risks associated with the purchase of
Virginia municipal securities is contained in the Combined Statement of
Additional Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified investment portfolio because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, with
regard to at least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following investment limitation, however, can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective.
The Fund will not invest more than 5% of its total assets in industrial
development bonds or other municipal securities when the payment of principal
and interest is the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations, including the
operation of any predecessor.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Combined Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which regulates
money market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security
as having received the requisite short-term ratings by NRSROs, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF FEDERATED MUNICIPAL TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of
Trustees is responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for the voluntary waiver of the advisory
fee by the adviser, the adviser may voluntarily waive some or all of the
advisory fee. This does not include reimbursement to the Fund of any
expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The adviser can terminate this voluntary waiver
of expenses at any time at its sole discretion. The adviser has also
undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional Shares
of the Fund. It is a Pennsylvania corporation organized on November 14, 1969,
and is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary
of Federated Investors, provides the Fund with the administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services, Inc., provides these at approximate cost.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND AND INSTITUTIONAL SHARES
Holders of Shares pay their allocable portion of Fund and Trust expenses.
The Trust expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and state securities
authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees;
legal fees of the Trust; association membership dues; and such non-recurring and
extraordinary items as may arise.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise.
At present, no expenses are allocated to the Shares as a class. However, the
Trustees reserve the right to allocate certain other expenses to holders of
Shares as it deems appropriate ("Class Expenses"). In any case, Class Expenses
would be limited to: transfer agent fees as identified by the transfer agent as
attributable to holders of Shares; printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders; registration fees paid to the Securities
and Exchange Commission and registration fees paid to state securities
commissions; expenses related to administrative personnel and services as
required to support holders of Shares; legal fees relating solely to Shares; and
Trustees' fees incurred as a result of issues relating solely to Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per Share is determined by adding the interest of the Shares in the value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding.
The Fund, of course, cannot guarantee that its net asset value will always
remain at $1.00 per Share.
INVESTING IN INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open for business. Shares may be purchased either by
wire or by mail. The Fund reserves the right to reject any purchase request.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) that same day. Federal funds should be wired as follows: State Street Bank
and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
Virginia Municipal Cash Trust--Institutional Shares; Fund Number (this number
can be found on the account statement or by contacting the Fund); Group Number
or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on days on which the New York Stock Exchange is
closed and on federal holidays restricting wire transfers.
BY MAIL. To purchase Shares by mail, send a check made payable to Virginia
Municipal Cash Trust-- Institutional Shares to the Trust's transfer agent,
Federated Services Company, c/o State Street Bank and Trust Company, P.O. Box
8602, Boston, Massachusetts 02266-8602. Orders by mail are considered received
when payment by check is converted by State Street Bank into federal funds. This
is normally the next business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund. Individual accounts
established through a bank or broker may be subject to a different minimum
investment requirement.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a bank or broker may be charged an additional service fee by that
bank or broker.
The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Financial
institutions holding Shares in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the financial institution with regard to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the day after the check is converted, upon
instruction of the transfer agent, into federal funds. Dividends are
automatically reinvested on payment dates in additional Shares unless cash
payments are requested on an application or by contacting the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses,
if any, could result in a decrease in dividends. If, for some extraordinary
reason, the Fund realizes net long-term or short-term capital gains, it will
distribute them at least once every 12 months.
REDEEMING INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund. Redemption
requests received before 12:00 noon (Eastern time) are not entitled to that
day's dividend. A daily dividend will be paid on Shares redeemed if the
redemption request is received after 12:00 noon (Eastern time). However, the
proceeds are not wired until the following business day. If, at any time, the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders will be promptly notified.
An authorization form permitting the Fund to accept redemption requests by
telephone must first be completed. Authorization forms and information on this
service are available from Federated Securities
Corp. Telephone redemption instructions may be recorded. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, shareholders may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as Written Requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name and class of shares,
his account number, and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, the proceeds from the redemption of those
Shares are not available, and the Shares may not be exchanged, until the Fund or
its agents are reasonably certain that the purchase check has cleared, which
could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of all series of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for such
acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument that the
Trust or its Trustees enter into or sign.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, 75% of the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
VIRGINIA TAX CONSIDERATIONS
Under existing Virginia law, distributions made by the Fund will not be subject
to Virginia individual or corporate income taxes to the extent that such
distributions are attributable to interest earned on
(i) obligations issued by or on behalf of the Commonwealth of Virginia or any
political subdivision thereof; or (ii) obligations issued by a territory or
possession of the United States or any political subdivision thereof which
federal law exempts from state income taxes. Conversely, to the extent that
distributions made by the Fund are attributable to other types of obligations,
such distributions will not be exempt from Virginia individual or corporate
income taxes.
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from regular state income taxes in
states other than Virginia or from personal property taxes. State laws differ on
this issue and shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield, effective yield, and
tax-equivalent yield for Institutional Shares.
The yield of Institutional Shares represents the annualized rate of income
earned on an investment in Institutional Shares over a seven-day period. It is
the annualized dividends earned during the period on the investment, shown as a
percentage of the investment. The effective yield is calculated similarly to the
yield, but, when annualized, the income earned by an investment in Institutional
Shares is assumed to be reinvested daily. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield of Institutional Shares is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that the
Institutional Shares would have had to earn to equal their actual yield,
assuming a specific tax rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Institutional Shares after reinvesting all income
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
Yield, effective yield, and tax-equivalent yield will be calculated separately
for Institutional Shares and Institutional Service Shares. Because Institutional
Service Shares are subject to a shareholder services plan fee, the yield, the
effective yield, and the tax-equivalent yield for Institutional Shares will
exceed the yield, the effective yield, and the tax-equivalent yield for
Institutional Service Shares for the same period.
From time to time, the Fund may advertise the performance of Institutional
Shares using certain reporting services and/or compare the performance of
Institutional Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Service Shares are sold to accounts for which financial
institutions act in an agency capacity. Institutional Service Shares are sold at
net asset value. Investments in Institutional Service Shares are also subject to
a minimum initial investment of $25,000.
Institutional Service Shares are subject to a shareholder services plan fee of
.10 of 1% of the Institutional Service Shares' average daily net assets.
Institutional Shares are not subject to a shareholder services plan fee.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares of the Fund
than from another class of shares depending upon which class of shares of the
Fund is sold. The distributor may pay an administrative fee to a financial
institution or broker for administrative services provided to the Institutional
Service Shares class, but such a fee will not be an expense of the class but
will be reimbursed to the distributor by the investment adviser. Administrative
fees are not paid in conjunction with Institutional Shares.
The difference between class expenses and distribution expenses borne by shares
of each respective class will cause the amount of dividends payable to a
particular class of shares to exceed the amount of dividends payable to another
class of shares whose distribution expenses are greater. Thus, because
Institutional Shares are not subject to a shareholder services plan fee, the
Institutional Shares' dividends will exceed the dividends paid by the
Institutional Service Shares.
The stated advisory fee is the same for all classes of shares.
VIRGINIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on page 32.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1993*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- ------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------
Net investment income 0.003
-------
- ------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.003)
-------
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00
-------
- ------------------------------------------------------------------------------------------------
TOTAL RETURN** 0.34%(a)
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------
Expenses 0.19%(b)
- ------------------------------------------------------------------------------------------------
Net investment income 2.67%(b)
- ------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 1.04%(b)
- ------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $45,648
- ------------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from September 16, 1993 (date of initial
public investment) to October 31, 1993.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a)Cumulative total return.
(b)Computed on an annualized basis.
(c)This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
S&P
PRINCIPAL OR FITCH*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- --------------------------------------------------------------------- ------------ --------------
SHORT-TERM MUNICIPAL SECURITIES--104.3%
- ------------------------------------------------------------------------------------
VIRGINIA--97.7%
---------------------------------------------------------------------
$ 1,000,000 Alexandria, VA, IDA Weekly VRDNs (American Red Cross)/(Sanwa Bank,
Ltd. LOC) P-1 $ 1,000,000
---------------------------------------------------------------------
2,500,000 Alexandria, VA, Redevelopment and Housing Authority Weekly VRDNs
(Crystal City Apartments)/(Safeco Insurance Co. of America
Insured)/(Subject AMT) A-1+ 2,500,000
---------------------------------------------------------------------
500,000 Amelia County, VA, IDA Weekly VRDNs (Series 1991)/ (Chambers Waste
Systems)/(NationsBank of North Carolina N.A. LOC)/(Subject to AMT) VMIG1 500,000
---------------------------------------------------------------------
2,000,000 Arlington County, VA, 3.60% BANs, 8/1/94 SP-1+ 2,013,182
---------------------------------------------------------------------
2,200,000 Arlington County, VA, Weekly VRDNs (Ballston Public
Parking)/(Citibank N.A. LOC) A-1 2,200,000
---------------------------------------------------------------------
1,440,000 Chesapeake Bay Bridge & Tunnel District, VA, General
Resolution Revenue Bonds Weekly VRDNs (P-Floats)/
(Series 1991)/(MBIA Insured) VMIG1 1,440,000
---------------------------------------------------------------------
2,000,000 Chesapeake, VA, IDA Weekly VRDNs (Series 1988)/ (Sumitomo Machinery
Corp. of America)/(Sumitomo Bank, Ltd. LOC)/(Subject to AMT) VMIG1 2,000,000
---------------------------------------------------------------------
2,050,000 Chesterfield County, VA, IDA, 2.90% CP (Series 1987A)/ (Virginia
Electric Power Co.), Mandatory Tender 11/15/93 A-1 2,050,000
---------------------------------------------------------------------
1,440,000 Fairfax County, VA, EDA Weekly VRDNs (Series 1993)/
(Future Homemakers of America)/(NationsBank of Virginia
N.A. LOC) P-1 1,440,000
---------------------------------------------------------------------
1,050,000 Fairfax County, VA, EDA Weekly VRDNs (William Byrd
Press)/(NationsBank of Virginia N.A. LOC) VMIG1 1,050,000
---------------------------------------------------------------------
2,000,000 Fairfax County, VA, Housing Authority Weekly VRDNs (Chase Commons
Associates)/(Bankers Trust Company LOC) VMIG1 2,000,000
---------------------------------------------------------------------
2,000,000 Fairfax County, VA, IDA Weekly VRDNs (Fairfax Hospital System,
Inc.)/(Dai-Ichi Kangyo Bank, Ltd. LOC) A-1+ 2,000,000
---------------------------------------------------------------------
2,340,000 Fairfax County, VA, Water Authority Revenue Bonds Weekly VRDNs
(P-FLOATS)/(Series 1992) VMIG1 2,340,000
---------------------------------------------------------------------
3,000,000 Falls Church, VA, IDA, 2.65% Semi-Annual TOBs (Series 1985)/(Kaiser
Permanente) Optional Tender, 5/1/94 A-1+ 3,000,000
---------------------------------------------------------------------
1,300,000 Greensville County, VA, IDA Daily VRDNs (Purdue Farms, Inc.)/(Morgan
Guaranty Trust Co. LOC)/(Subject to AMT) A-1+ 1,300,000
---------------------------------------------------------------------
4,000,000 Halifax, VA, IDA, MMMs, PCR, 3.10% CP (Virginia Electric Power
Co.)/(Subject to AMT) Mandatory Tender,
1/25/94 A-1+ 4,000,000
---------------------------------------------------------------------
1,223,000 Norfolk, VA, Redevelopment and Housing Authority Weekly VRDNs (Series
1990)/(St. Paul's Associates, L.P.)/
(NationsBank of Virginia N.A. LOC) P-1 1,223,000
---------------------------------------------------------------------
1,600,000 Peninsula Port Authority, VA, Daily VRDNs
(Shell Oil Co.) AAA 1,600,000
---------------------------------------------------------------------
1,000,000 Peninsula Port Authority of VA Weekly VRDNs (Series 1993)/(Allied
Signal, Inc. Guaranty) A-1 1,000,000
---------------------------------------------------------------------
2,980,000 Richmond, VA, 3.00% SB, 1/15/94 AA 2,984,053
---------------------------------------------------------------------
3,000,000 Richmond, VA, Redevelopment and Housing Authority Weekly VRDNs
(Series 1989)/(Belmont Apartments)/
(NationsBank of North Carolina N.A. LOC) P-1 3,000,000
---------------------------------------------------------------------
2,000,000 Suffolk, VA, Redevelopment and Housing Authority Weekly VRDNs
(Terry/Peterson Development Corp.)/
(NationsBank of Virginia N.A. LOC) P-1 2,000,000
---------------------------------------------------------------------
3,000,000 Virginia Education Loan Authority, 2.85% TOBs (Series
1993H)/(Escrowed in Treasuries)/(Subject to AMT), Mandatory Tender
2/24/94 VMIG1 3,000,000
---------------------------------------------------------------------
2,000,000 Virginia Housing Development Authority Weekly VRDNs (Series
1987A)/(AHC Service Corp.)/(Mitsubishi Bank, Ltd. LOC) P-1 2,000,000
---------------------------------------------------------------------
4,000,000 Virginia State, HDA, 2.95% Semi-Annual TOBs (Series 1992B)/(Stem
II)/(Subject to AMT) Mandatory Tender,
3/24/94 A-1+ 4,001,794
--------------------------------------------------------------------- --------------
TOTAL 51,642,029
--------------------------------------------------------------------- --------------
PUERTO RICO--6.6%
---------------------------------------------------------------------
3,500,000 Puerto Rico Commonwealth, 3.00% TRANS (Series 1993A), 7/29/94 SP-1+ 3,510,041
--------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (AT AMORTIZED COST) $ 55,152,070\
--------------------------------------------------------------------- --------------
</TABLE>
* See Notes to Portfolio of Investments.
\ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($52,858,271) at
October 31, 1993.
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
AMT--Alternative Minimum Tax
BANs--Bond Anticipation Notes
CP--Commercial Paper
EDA--Economic Development Authority
HDA--Hospital Development Authority
IDA--Industrial Development Authority
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance
MMMs--Money Market Municipals
PCR--Pollution Control Revenue
SB--Serial Bond
TOBs--Tender Option Bonds
TRANs--Tax and Revenue Anticipation Notes
VRDNs--Variable Rate Demand Notes
VIRGINIA MUNICIPAL CASH TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
S&P
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S
Moody's short-term ratings are designated Moody's Investment Grade (MIG OR VMIG
(see below)). The purpose of the MIG of VMIG ratings is to provide investors
with a simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
FITCH
Fitch's short-term ratings place greater emphasis on the existence of liquidity
necessary to meet the issuer's obligations in a timely manner.
F-1 Strongest degree of assurance for timely payment. Those issues determined to
provide exceptionally strong credit quality are given a plus (+)
designation.
F-2 Notes reflecting a degree of assurance for timely payment only slightly less
in degree than the highest category.
VARIABLE RATE DEMAND NOTES (VRDNS)
AND
TENDER OPTION BONDS (TOBS)
RATINGS
S&P
Standard & Poor's assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-1+, AA/A-1K, and A/A-1. (The
definitions for the long-term and the short-term ratings are provided below.)
MOODY'S
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity.
In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the
first representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the second representing an evaluation of
the degree of risk associated with the demand feature. The VMIG rating can be
assigned a 1 or 2 designation using the same definitions described above for the
MIG rating.
FITCH
Fitch usually assigns two ratings to long-term debt issues that include
provisions for a variable rate demand feature. The long-term rating addresses
the ability of the obligor to pay debt service and the short-term rating
addresses the timely payment of the demand feature. Examples of rating
designations are as follows: AAA/F-1+, AA/F-1K, and A/F-1. (The definitions for
the long-term and short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
S&P
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."
MOODY'S
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
The following is an explanation of the Fitch ratings. These ratings are not
referenced in the Portfolio of Investments.
FITCH
F-1 Issues assigned this rating reflect a strong degree of assurance for timely
payment. Those issuers determined to possess the strongest degree of
assurance for timely payment are denoted with a plus (+) sign designation.
F-2 Issuers carrying this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the "F-1+" and
"F-1" categories.
LONG-TERM DEBT RATINGS
(INVESTMENT GRADE)
S&P
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
principal and interest than debt rated in higher ratings categories.
MOODY'S
AAA Bonds that are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large margin and
principal is secure. While the various protective elements are likely to
change, such changes which can be foreseen are most unlikely to impair
the fundamentally strong position of such issues.
AA Bonds that are rated AA are judged to be of high quality by all
standards. Together with the AAA group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in AAA securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in AAA securities.
A Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are
considered adequate, but elements may be present that suggest a
susceptibility to impairment some time in the future.
BAA Bonds which are rated BAA are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
FITCH
AAA Bonds that are rated AAA are of the highest credit quality. The obligor
has an exceptionally strong ability to pay debt service.
AA Bonds that are rated AA are of very high quality. The obligor has a very
strong ability to pay debt service. Debt rated in this category may also
have a (+) or (-) sign with a rating to indicate the relative position
within the rating category.
A Bonds are considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
NR indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P, Moody's, or Fitch with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated in one of the two highest short-term ratings
categories by a nationally recognized statistical ratings organization.
NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by
Fitch.
NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch.
NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term
debt rated "A" by Standard & Poor's, Moody's, or Fitch.
NR(4) The underlying issuer/obligor/gurantor has other outstanding long-term
debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by
Fitch.
VIRGINIA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $ 55,152,070
- --------------------------------------------------------------------------------------------------
Cash 411,467
- --------------------------------------------------------------------------------------------------
Interest receivable 200,207
- --------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 171,923
- -------------------------------------------------------------------------------------------------- --------------
Total assets 55,935,667
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------------
Payable for investments purchased $ 3,000,000
- -----------------------------------------------------------------------------------
Dividends payable 35,508
- -----------------------------------------------------------------------------------
Accrued expenses and other liabilities 41,888
- ----------------------------------------------------------------------------------- -------------
Total liabilities 3,077,396
- -------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 52,858,271 shares of beneficial interest outstanding $ 52,858,271
- -------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- --------------------------------------------------------------------------------------------------
Institutional Service Shares ($45,647,769 / 45,647,769 shares
of beneficial interest outstanding) $1.00
- -------------------------------------------------------------------------------------------------- --------------
Institutional Shares ($7,210,502 / 7,210,502 shares of beneficial interest outstanding) $1.00
- -------------------------------------------------------------------------------------------------- --------------
(See Notes which are an integral part of the Financial Statements)
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 16, 1993 (DATE OF INITIAL PUBLIC INVESTMENT) TO
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 148,599
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 20,894
- -----------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 24,647
- -----------------------------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 13,246
- -----------------------------------------------------------------------------------------
Shareholder services fees 4,695
- ----------------------------------------------------------------------------------------- ---------
Total expenses 63,482
- -----------------------------------------------------------------------------------------
Deduct--
- -----------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 20,894
- ------------------------------------------------------------------------------
Reimbursement of other operating expenses (Note 5) 33,250 54,144
- ------------------------------------------------------------------------------ --------- ---------
Net expenses 9,338
- ---------------------------------------------------------------------------------------------------- -----------
Net investment income $ 139,261
- ---------------------------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements)
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
10/31/93*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------------------------
Net investment income $ 139,261
- ------------------------------------------------------------------------------------------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -------------------------------------------------------------------------------------------------
Institutional Service Shares (124,823)
- -------------------------------------------------------------------------------------------------
Institutional Shares (14,438)
- ------------------------------------------------------------------------------------------------- ---------------
Change in net assets from distributions to shareholders (139,261)
- ------------------------------------------------------------------------------------------------- ---------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -------------------------------------------------------------------------------------------------
Proceeds from sale of shares 122,368,804
- -------------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 95,476
- -------------------------------------------------------------------------------------------------
Cost of shares redeemed (69,606,009)
- ------------------------------------------------------------------------------------------------- ---------------
Change in net assets from Fund share transactions 52,858,271
- ------------------------------------------------------------------------------------------------- ---------------
Change in net assets 52,858,271
- -------------------------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------------------------
Beginning of period --
- ------------------------------------------------------------------------------------------------- ---------------
End of period $ 52,858,271
- ------------------------------------------------------------------------------------------------- ---------------
*The period from September 16, 1993 (date of initial public investment) to October 31, 1993.
(See Notes which are an integral part of the Financial Statements)
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company
with several portfolios. The financial statements included herein are only those
of Virginia Municipal Cash Trust (the "Fund"). The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
Effective September 16, 1993, the Fund provides two classes of shares
("Institutional Service Shares" and "Institutional Shares"). Institutional
Shares are identical in all respects to Institutional Service Shares except that
Institutional Service Shares are sold pursuant to a shareholder services plan of
up to .10 of 1% of average daily net assets of the Institutional Service Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best method currently
available for valuing portfolio securities is amortized cost. The Fund's use of the amortized cost method to
value its portfolio securities is conditioned on its compliance with Rule 2a-7 under the Investment Company
Act of 1940.
Since the Fund may invest a substantial portion of its assets in issuers located in one state, it will be more
susceptible to factors adversely affecting issuers of that state, than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such factors, at October 31, 1993, 48.3%
of the securities in the portfolio of investments were backed by letters of credit or bond insurance of
various financial institutions and financial guaranty assurance agencies of various financial institutions.
The aggregate percentages by financial institutions ranged from 1.8% to 10.4% of total investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest earned net of
premium, and original issue discount as required by the Internal Revenue Code.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal Revenue Code (the "Code")
applicable to investment companies and to distribute to shareholders each year all of its net income.
Accordingly, no provision for federal tax is necessary. Dividends paid by the Fund representing net interest
received on tax-exempt municipal securities are not includable by shareholders as gross income for federal
income tax purposes because the Fund intends to meet certain requirements of the Code applicable to regulated
investment companies which will enable the Fund to pay exempt-interest dividends. The portion of such
interest, if any, earned on private activity bonds issued after August 7, 1986, may be considered a tax
preference item to shareholders for the purpose of computing the alternative minimum tax.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery
transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objective and policies and not for the purpose of
investment leverage. The Fund will record a when-issued security and the related liability on the trade date.
Until the securities are received and paid for, the Fund will maintain security positions such that sufficient
liquid assets will be available to make payment for the securities purchased. Securities purchased on a
when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement
date.
E. EXPENSES--Expenses of the Fund (other than shareholder servicing fees) and waivers and reimbursements, if any,
are allocated to each class of shares based on its relative daily average net assets for the period. Expenses
incurred by the Trust which do not specifically relate to an individual fund are allocated among all funds
based on a fund's relative net asset value size or as deemed appropriate by the administrator.
F. OTHER--Investment transactions are accounted for on the date of the transaction.
</TABLE>
(3) DIVIDENDS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash, or in additional
shares at the net asset value on the payable date.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1993, capital paid-in aggregated $52,858,271.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR
ENDED
INSTITUTIONAL SERVICE SHARES 10/31/93**
<S> <C>
Shares outstanding, beginning of period --
- ---------------------------------------------------------------------------------------------------
Shares sold 113,204,248
- ---------------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 95,476
- ---------------------------------------------------------------------------------------------------
Shares redeemed (67,651,955)
- --------------------------------------------------------------------------------------------------- -------------
Shares outstanding, end of period 45,647,769
- --------------------------------------------------------------------------------------------------- -------------
** The period from September 16, 1993 (date of initial public investment) to October 31, 1993.
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR
ENDED
INSTITUTIONAL SHARES 10/31/93**
Shares outstanding, beginning of period --
<S> <C>
- ---------------------------------------------------------------------------------------------------
Shares sold 9,164,556
- ---------------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared --
- ---------------------------------------------------------------------------------------------------
Shares redeemed (1,954,054)
- --------------------------------------------------------------------------------------------------- -------------
Shares outstanding, end of period 7,210,502
- --------------------------------------------------------------------------------------------------- -------------
**The period from September 16, 1993 (date of initial public investment) to October 31, 1993.
</TABLE>
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Management, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to .40 of 1% of the Fund's
average daily net assets. Adviser has voluntarily agreed to waive a portion of
its fee. Adviser can modify or terminate this voluntary waiver of expense at any
time at its sole discretion. For the period from September 16, 1993 (date of
initial public investment) to October 31, 1993, the investment advisory fee
amounted to $20,894, all of which was voluntarily waived in accordance with such
undertaking. In addition, Adviser voluntarily reimbursed $33,250 of the Fund's
other operating expenses.
Organizational expenses ($35,000) were borne initially by the Adviser. The Fund
has agreed to reimburse the Adviser during the five-year period following the
date the Trust's portfolio became effective.
During the fiscal year ended October 31, 1993, the Fund engaged in purchase and
sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7
of the Investment Company Act of 1940 amounting to $41,592,120 and $34,809,000,
respectively. These purchases and sales were conducted on an arms-length basis
insofar as they were transacted for cash consideration only, at independent
current market prices and without brokerage commission, fee or other
remuneration.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Certain Officers and Trustees of the
Trust are Officers and Directors of the above corporations.
(6) CURRENT CREDIT RATINGS
Current credit ratings and related notes are unaudited.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST (Virginia Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of Virginia
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio investments,
as of October 31, 1993, the related statement of operations for the year then
ended, the statement of changes in net assets, and the financial highlights (see
pages 2 and 17 of the prospectus) for the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of October 31, 1993,
by correspondence with the custodian and broker. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Virginia Municipal Cash Trust, an investment portfolio of Federated Municipal
Trust, as of October 31, 1993, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for the
periods presented in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania
December 13, 1993
THIS PAGE INTENTIONALLY LEFT BLANK
THIS PAGE INTENTIONALLY LEFT BLANK
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Virginia Municipal Cash Trust
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
VIRGINIA MUNICIPAL
CASH TRUST
INSTITUTIONAL SHARES
PROSPECTUS
A Non-Diversified Portfolio of
Federated Municipal Trust,
an Open-End Management
Investment Company
December 31, 1993
3080501A-IS (12/93)
VIRGINIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with
the respective prospectus for Institutional Shares and Institutional
Service Shares of Virginia Municipal Cash Trust (the "Fund") dated
December 31, 1993. This Statement is not a prospectus itself. To
receive a copy of either prospectus, write or call Federated Municipal
Trust.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1993
FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Acceptable Investments 1
When-Issued and Delayed
Delivery Transactions 1
Temporary Investments 2
Reverse Repurchase Agreements 2
Investment Limitations 2
Virginia Investment Risks 4
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
- ---------------------------------------------------------------
Officers and Trustees 5
The Funds 7
Fund Ownership 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES
7
- ---------------------------------------------------------------
Adviser to the Fund 7
Advisory Fees 8
SHAREHOLDER SERVICES PLAN
(INSTITUTIONAL SERVICE SHARES ONLY) 8
- ---------------------------------------------------------------
ADMINISTRATIVE SERVICES 9
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 9
- ---------------------------------------------------------------
PURCHASING SHARES 9
- ---------------------------------------------------------------
Conversion to Federal Funds 9
DETERMINING NET ASSET VALUE 9
- ---------------------------------------------------------------
Use of Amortized Cost Method 9
REDEEMING SHARES 10
- ---------------------------------------------------------------
Redemption in Kind 10
TAX STATUS 11
- ---------------------------------------------------------------
The Fund's Tax Status 11
YIELD 11
- ---------------------------------------------------------------
EFFECTIVE YIELD 11
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 12
- ---------------------------------------------------------------
Tax-Equivalency Table 12
PERFORMANCE COMPARISONS 12
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was
established as a Massachusetts business trust under a Declaration of Trust dated
September 1, 1989.
Shares of the Fund are offered in two classes, known as Institutional Shares and
Institutional Service Shares (individually and collectively referred to as
"Shares"). This Combined Statement of Additional Information relates to the
above-mentioned Shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income exempt from federal
regular income tax and the income tax imposed by the Commonwealth of Virginia
consistent with stability of principal. The investment objective cannot be
changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of the
Commonwealth of Virginia and of other states, territories and possessions of the
United States, including the District of Columbia, and any political subdivision
or financing authority of any of these, the income from which is, in the opinion
of qualified legal counsel, exempt from both federal regular income tax and the
income taxes imposed by the Commonwealth of Virginia.
When determining whether a Virginia municipal security presents minimal credit
risks, the investment adviser considers the creditworthiness of the issuer of
the security, the issuer of a demand feature if the Fund has the unconditional
right to demand payment for the security, or the guarantor of payment by either
of those issuers.
If a security loses its rating or the security's rating is reduced below the
required minimum after the Fund purchased it, the Fund is not required to sell
the security. The investment adviser considers this event, however, in its
determination of whether the Fund should continue to hold the security in its
portfolio. If ratings made by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") change because of changes in those
organizations or in their rating systems, the Fund will try to use comparable
ratings as standards in accordance with the investment policies described in the
Fund's prospectuses.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests which represent undivided proportional interests in lease
payments by a governmental or non-profit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that
the participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they became
due. In the event of a default or failure of appropriation, unless the
participation interests are credit enhanced, it is unlikely that the
participants would be able to obtain an acceptable substitute source of
payment.
Under the criteria currently established by the Board of Trustees
("Trustees"), the Fund's investment adviser must consider the following
factors in determining the liquidity of municipal lease securities: (1)
the frequency of trades and quotes for the security; (2) the volatility
of quotations and trade prices for the security; (3) the number of
dealers willing to purchase or sell the security and the number of
potential purchasers;
(4) dealer undertakings to make a market in the security; (5) the nature
of the security and the nature of the marketplace trades; (6) the rating
of the security and the financial condition and prospects of the issuer
of the security; (7) such other factors as may be relevant to the Fund's
ability to dispose of the security;
(8) whether the lease can be terminated by the lessee; (9) the potential
recovery, if any, from a sale of the leased property upon termination of
the lease; (10) the lessee's general credit strength; (11) the likelihood
that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its
operations; and (12) any credit enhancement or legal recourse provided
upon an event of nonappropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
The Fund may engage in these transactions to an extent that would cause the
segregation of an amount up to 20% of the total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in high quality temporary investments during times of
unusual market conditions for defensive purposes and to maintain liquidity.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale
to repurchase them at a mutually agreed upon time and price within one
year from the date of acquisition. The Fund or its custodian will take
possession of the securities subject to repurchase agreements and these
securities will be marked to market daily. To the extent that the
original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities. In the event that a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be
delayed pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such
as broker/dealers, which are deemed by the Fund's investment adviser to
be creditworthy pursuant to guidelines established by the Trustees.
From time to time, such as when suitable Virginia municipal securities are not
available, the Fund may maintain a portion of its assets in cash. Any portion of
the Fund's assets maintained in cash will reduce the amount of assets in
Virginia municipal securities and thereby reduce the Fund's yield.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
During the period any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse repurchase agreements,
the Fund will restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date on the reverse repurchase
agreement.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for the
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess of 5% of
its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of its total assets at the time of the pledge.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or nonpublicly issued Virginia municipal securities or temporary
investments or enter into repurchase agreements, in accordance with its
investment objective, policies, limitations and its Declaration of Trust.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of
the value of its assets in cash or cash items (including instruments
issued by a U.S. branch of a domestic bank or savings and loan having
capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment), securities issued or guaranteed by the U.S.
government, its agencies, or instrumentalities, or instruments secured by
these money market instruments, such as repurchase agreements.
The above investment limitations cannot be changed without shareholder approval.
The Fund does not consider the issuance of separate classes of shares to involve
the issuance of "senior securities" within the meaning of the investment
limitation set forth above. The following limitations, however, may be changed
by the Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, reorganization, or other
acquisition.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
industrial development bonds or other municipal securities where the
principal and interest is the responsibility of companies (or guarantors,
where applicable) with less than three years of continuous operations,
including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs, or leases.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
securities which are illiquid, including repurchase agreements providing
for settlement in more than seven days after notice, certain restricted
securities not determined by the Trustees to be liquid, and
non-negotiable fixed time deposits with maturities over seven days.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its total assets in securities
subject to restrictions on resale under the Securities Act of 1933 except
for certain restricted securities which meet the criteria for liquidity
as established by the Trustees.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its net assets during the coming fiscal year.
In order to comply with certain state restrictions, the Fund will not invest in
real estate limited partnerships or oil, gas or other mineral leases.
VIRGINIA INVESTMENT RISKS
The Commonwealth of Virginia's credit strength is derived from a diversified
economy, relatively low unemployment rates, strong financial management, and a
low debt burden. The Commonwealth's economy benefits significantly from its
proximity to Washington, D.C. Government is the Commonwealth's third-largest
employment sector, comprising 21% of total employment. Other important sectors
of the economy include shipbuilding, tourism, construction, and agriculture. The
effects of the most recent base-closing legislation were muted because of
consolidation from out-of-state bases to Virginia installations. While military
operations at the Pentagon are unlikely to be threatened, another round of base
closings scheduled for 1995 may jeopardize a number of Virginia installations.
Virginia is a very conservative debt issuer and has maintained debt levels that
are low in relation to its substantial resources. Conservative policies also
dominate the Commonwealth's financial operations; and the Commonwealth
administration continually demonstrates its ability and willingness to adjust
financial planning and budgeting to preserve financial balance. For example,
economic weakness in the Commonwealth and the region caused personal income and
sale and corporate tax collections to fall below projected forecasts and placed
the Commonwealth under budgetary strain. The Commonwealth reacted by reducing
its revenue expectations for the 1990-92 biennium and preserved financial
balance through a series of transfers, appropriation reductions, and other
budgetary revisions. Management's actions resulted in a modest budget surplus
for fiscal 1992 and another modest surplus was reported for fiscal year 1993,
which ended June 30.
The Fund's concentration in securities issued by the Commonwealth and its
political subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities. The ability of the
Commonwealth or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political, and demographic
conditions within the Commonwealth; and the underlying fiscal condition of the
Commonwealth, its counties, and its municipalities.
FEDERATED MUNICIPAL TRUST MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Management,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, Inc., and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue\* Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer and
Director, Trustee, or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company. Mr. Donahue is the father
of J. Christopher Donahue, Vice President of the Trust.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President,
Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate
Department Village Development Corporation; General Partner or Trustee in private
John R. Wood and real estate ventures in Southwest Florida; Director, Trustee, or
Associates, Inc., Realtors Managing General Partner of the Funds; formerly, President, Naples
3255 Tamiami Trail North Property Management, Inc.
Naples, FL
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza-- Director, Trustee, or Managing General Partner of the Funds; formerly,
23rd Floor Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Pittsburgh, PA Director, Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director,
Concord, MA Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Glen R. Johnson* President and Trustee, Federated Investors; President and/or Trustee of some of the
Federated Investors Tower Trustee Funds; staff member, Federated Securities Corp. and Federated
Pittsburgh, PA Administrative Services, Inc.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly,
Boston, MA President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Learning Endowment for International Peace, RAND Corporation, Online Computer
University of Pittsburgh Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Pittsburgh, PA Management Center; Director, Trustee or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Tower Federated Management, and Federated Research; Trustee, Federated
Pittsburgh, PA Services Company; President and Director, Federated Administrative
Services, Inc.; President or Vice President of the Funds; Director,
Trustee, or Managing General Partner of some of the Funds. Mr. Donahue
is the son of John F. Donahue, Chairman and Trustee of the Trust.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director, Federated Securities Corp.; President or Vice President of the
Pittsburgh, PA Funds; Director or Trustee of some of the Funds.
Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice
Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Trustee, Federated Services Company; Executive Vice
President, Treasurer, and Director, Federated Securities Corp.;
Chairman, Treasurer, and Director, Federated Administrative Services,
Inc.; Trustee or Director of some of the Funds; Vice President and
Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors Tower and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary, and Director,
Federated Administrative Services, Inc.; Director and Executive Vice
President, Federated Securities Corp.; Vice President and Secretary of
the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Vice President
of the Funds; Director, Trustee, or Managing General Partner of some of
the Funds; formerly, Vice President, The Standard Fire Insurance Compa-
ny and President of its Federated Research Division.
</TABLE>
*This Trustee is deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940, as amended.
\Member of the Trust's Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series,
Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT
Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated
Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed
Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Intermediate Municipal Trust; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund,
Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust, Inc.--1999;
Liberty U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid
Cash Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New
York Municipal Cash Trust; 111 Corcoran Funds; The Passageway Funds; The
Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds;
Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term
U.S. Government Securities; and Trust for U.S. Treasury Obligations.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding Shares.
As of November 29, 1993, the following shareholders of record owned 5% or more
of the outstanding Institutional Shares of the Fund: Firstblue & Company,
Bluefield, West Virginia, owned approximately 1,002,485 Shares (10.95%); The
Flat Top National Bank, Bluefield, West Virginia, owned approximately 1,301,800
Shares (14.22%); NABAF & Company, Fredricksburg, Virginia, owned approximately
984,493 Shares (10.76%); Marshall National Bank & Trust, Marshall, Virginia,
owned 1,303,390 Shares (14.24%); Planta & Co., Staunton, Virginia, owned
approximately 1,822,016 Shares (19.91%); Comfort & Co., Hampton, Virginia, owned
approximately 1,422,909 Shares (15.55%); and Chesnat, Kilmarnock, Virginia,
owned approximately 940,663 Shares (10.28%).
As of November 29, 1993, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of the Fund: Lawrence Lucchino,
Bethesda, Maryland, owned approximately 7,641,847 Shares (14.20%); ARES, McLean,
Virginia, owned approximately 5,444,829 Shares (10.12%); W&L Construction &
Paving Inc., Chilhowie, Virginia, owned approximately 6,393,104 Shares (11.88%);
and Charles L. Wilson and Thomas G. Wilson Trust, Waynesboro, Virginia, owned
approximately 5,216,627 Shares (9.69%).
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All of the Class A (voting) shares of Federated Investors
are owned by a trust, the trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue. John F. Donahue is Chairman and Trustee,
Federated Management; Chairman and Trustee, Federated Investors; and Chairman
and Trustee of the Trust. John A. Staley, IV, is President and Trustee,
Federated Management; Vice President and Trustee, Federated Investors; Executive
Vice President, Federated Securities Corp.; and Vice President of the Trust. J.
Christopher Donahue is Trustee, Federated Management; President and Trustee,
Federated Investors; President and Director, Federated Administrative Services,
Inc.; and Vice President of the Trust. John W. McGonigle is Vice President,
Secretary, and Trustee, Federated Management; Trustee, Vice President, Secretary
and General Counsel, Federated Investors; Executive Vice President, Secretary
and Director, Federated Administrative Services, Inc.; Executive Vice President
and Director, Federated Securities Corp.; and Vice President and Secretary of
the Trust.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. During the period from September
16, 1993 (date of initial public investment), to October 31, 1993, the Fund's
adviser earned $20,894, all of which was voluntarily waived.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
These arrangements are not part of the advisory contract and have been
established only to comply with applicable state authorities. They may be
amended or rescinded in the future.
SHAREHOLDER SERVICES PLAN (INSTITUTIONAL SERVICE SHARES ONLY)
- --------------------------------------------------------------------------------
The Trust has adopted a Shareholder Services Plan (the "Services Plan") with
respect to Institutional Service Shares of the Fund. Pursuant to the Services
Plan, financial institutions will enter into shareholder service agreements with
the Fund to provide administrative support services to their customers who from
time to time may be owners of record or beneficial owners of Institutional
Service Shares of the Fund. In return for providing these support services, a
financial institution may receive payments from Institutional Service Shares at
a rate not exceeding 0.10% of the average daily net assets of Institutional
Service Shares beneficially owned by the financial institution's customers for
whom it is holder of record or with whom it has a servicing relationship. The
Services Plan is designed to stimulate financial institutions to render
administrative support services to the Fund and its shareholders. These
administrative support services include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
personnel, including clerical, supervisory, and computer, as is necessary or
beneficial to establish and maintain shareholders' accounts and records,
processing purchase and redemption transactions and automatic investments of
client account cash balances, answering routine client inquiries regarding
Institutional Service Shares, assisting clients in changing dividend options,
account designations, and addresses, and providing such other services as the
Fund may reasonably request.
Among the benefits the Trustees expect to achieve in adopting the Services Plan
are the following: (1) an efficient and effective administrative system; (2) a
more efficient use of shareholder assets by having them rapidly invested in
Institutional Service Shares, through an automatic transfer of funds from a
demand deposit account to an investment account, with a minimum of delay and
administrative detail; and (3) an efficient and reliable shareholder records
system and prompt responses to shareholder requests and inquiries concerning
their accounts.
In addition to receiving payments under the Services Plan, financial
institutions may be compensated by the investment adviser and/or the
administrator, or affiliates thereto, for providing administrative support
services to holders of Institutional Service Shares of the Fund. These payments
will be made directly by the investment adviser and/or the administrator and
will not be made from the assets of the Institutional Service Shares of the
Fund.
During the period from September 16, 1993 (date of initial public investment),
to October 31, 1993, Institutional Service Shares incurred shareholder service
fees under the Services Plan (all of which was received by the distributor) in
the amount of $4,695.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund at approximate cost.
During the period from September 16, 1993 (date of initial public investment),
to October 31, 1993, the Fund incurred costs for administrative services of
$24,647. John A. Staley, IV, an officer of the Trust, and Dr. Henry J. Gailliot,
an officer of Federated Management, the adviser to the Fund, each hold
approximately 15% and 20%, respectively, of the outstanding common stock and
serve as directors of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services, Inc. For the
fiscal years ended October 31, 1993, 1992, and 1991, Federated Administrative
Services, Inc., paid approximately $165,431, $189,741, and $187,677,
respectively, for services provided by Commercial Data Services, Inc.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the investment adviser will generally use those
who are recognized dealers in specific portfolio instruments, except when a
better price and execution of the order can be obtained elsewhere. The adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
.advice as to the advisability of investing in securities;
.security analysis and reports;
.economic studies;
.industry studies;
.receipt of quotations for portfolio evaluations; and
.similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve wire system are open for business.
The procedure for purchasing Shares is explained in the respective prospectus
under "Investing in Institutional Shares" and "Investing in Institutional
Service Shares."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. State Street Bank and Trust
Company acts as the shareholder's agent in depositing checks and converting them
to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a Share at $1.00. The days on which
net asset value is calculated by the Fund are described in the respective
prospectus.
USE OF AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7, as amended (the
"Rule"), promulgated by the Securities and Exchange Commission under the
Investment Company Act of 1940. Under the Rule, the Trustees must establish
procedures reasonably designed to stabilize the net asset value per share, as
computed for purposes of distribution and redemption, at $1.00 per share, taking
into account current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the
instrument from the issuer or a third party (1) on no more than 30 days' notice
or (2) at specified intervals not exceeding one year on no more than 30 days'
notice. A standby commitment entitles the Fund to achieve same-day settlement
and to receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
Although demand features and standby commitments are techniques and are defined
as "puts" under the Rule, the Fund does not consider them to be "puts" as that
term is used in the Fund's investment limitations. Demand features and standby
commitments are features which enhance an instrument's liquidity, and the
investment limitation which proscribes puts is designed to prohibit the purchase
and sale of put and call options and is not designed to prohibit the Fund from
using techniques which enhance the liquidity of portfolio instruments.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.5% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risk and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than 397 days can be
purchased by the Fund. For a discussion of the treatment of variable rate
municipal securities with demand features, refer to "Variable Rate Demand
Notes" in the prospectus.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on Shares of
the Fund, computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above, may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on Shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
respective prospectus under "Redeeming Institutional Shares" and "Redeeming
Institutional Service Shares." Although State Street Bank does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective Fund's portfolio. To the extent
available, such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem Shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net asset
value of the respective class during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
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THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
.derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
.derive less than 30% of its gross income from the sale of securities held less
than three months;
.invest in securities within certain statutory limits; and
.distribute to its shareholders at least 90% of its net income earned during the
year.
YIELD
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The Fund's yield for Institutional Shares for the seven-day period ended October
31, 1993, was 2.53%. The yield for Institutional Service Shares was 2.43% for
the same period.
The Fund calculates its yield daily, for both classes of Shares, based upon the
seven days ending on the day of the calculation, called the "base period." This
yield is computed by:
.determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net change
excluding capital changes but including the value of any additional shares
purchased with dividends earned from the original one share and (on funds that
pay dividends daily) all dividends declared on the original and any
purchased shares;
.dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
.multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of Shares, the performance will be reduced for those shareholders paying
those fees.
EFFECTIVE YIELD
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The Fund's effective yield for Institutional Shares for the seven-day period
ended October 31, 1993, was 2.56%. The effective yield for Institutional Service
Shares was 2.46% for the same period.
The Fund's effective yield for both classes of Shares is computed by compounding
the unannualized base period return by:
.adding 1 to the base period return;
.raising the sum to the 365/7th power; and
.subtracting 1 from the result.
TAX-EQUIVALENT YIELD
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The Fund's tax-equivalent yield for Institutional Shares for the seven-day
period ended October 31, 1993, was 3.86%. The tax-equivalent yield for
Institutional Service Shares was 3.71% for the same period.
The tax-equivalent yield for both classes of Shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that either class of
Shares would have had to earn to equal its actual yield, assuming a 28% federal
tax rate and the 5.75% regular personal income tax rate imposed by Virginia and
assuming that income earned by the Fund is 100% tax-exempt on a regular federal,
state, and local basis.
TAX-EQUIVALENCY TABLE
Both classes of Shares may also use a tax-equivalency table in advertising and
sales literature. The interest earned by the municipal securities in the Fund's
portfolio generally remains free from federal regular income tax*, and is often
free from state and local taxes as well. As the table below indicates, a
"tax-free" investment is an attractive choice for investors, particularly in
times of narrow spreads between tax-free and taxable yields.
<TABLE>
<S> <C> <C> <C> <C> <C>
TAXABLE YIELD EQUIVALENT FOR 1993
COMMONWEALTH OF VIRGINIA
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COMBINED FEDERAL AND STATE INCOME TAX BRACKET
20.75% 33.75% 36.75% 41.75% 45.35%
- ----------------------------------------------------------------------------------
JOINT RETURN: $1- $36,901- $89,151- $140,001- Over
36,900 89,150 140,000 250,000 $250,000
SINGLE RETURN: $1- $22,101- $53,501- $115,001- Over
22,100 53,500 115,000 250,000 $250,000
- ----------------------------------------------------------------------------------
TAX-EXEMPT YIELD
TAXABLE YIELD EQUIVALENT
- ----------------------------------------------------------------------------------
2.00% 2.52% 3.02% 3.16% 3.43% 3.66%
2.50 3.15 3.77 3.95 4.29 4.57
3.00 3.79 4.53 4.74 5.15 5.49
3.50 4.42 5.28 5.53 6.01 6.40
4.00 5.05 6.04 6.32 6.87 7.32
4.50 5.68 6.79 7.11 7.73 8.23
5.00 6.31 7.55 7.91 8.58 9.15
5.50 6.94 8.30 8.70 9.44 10.06
6.00 7.57 9.06 9.49 10.30 10.98
6.50 8.20 9.81 10.28 11.16 11.89
7.00 8.83 10.57 11.07 12.02 12.81
7.50 9.46 11.32 11.86 12.88 13.72
8.00 10.09 12.08 12.65 13.73 14.64
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
Taxable Yield Equivalent. Furthermore, additional state and local taxes
paid on comparable taxable investments were not used to increase federal
deductions.
The above chart is for illustrative purposes only. It is not an indicator of
past or future performance of either class of Shares.
*Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local regular or alternative minimum taxes.
PERFORMANCE COMPARISONS
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The performance of both classes of Shares depends upon such variables as:
.portfolio quality;
.average portfolio maturity;
.type of instruments in which the portfolio is invested;
.changes in interest rates on money market instruments;
.changes in the Fund's or either class of Share's expenses; and
.the relative amount of Fund cash flow.
From time to time, the Fund may advertise the performance of both classes of
Shares compared to similar funds or portfolios using certain indices, reporting
services, and financial publications. These may include the following:
.LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "money market
funds" category in advertising and sales literature.
.MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars and ratings are effective for two
weeks.
Investors may use such an index in addition to the prospectus of either class of
Shares to obtain a more complete view of the performance of that class before
investing. Of course, when comparing performance of either class of Shares to
any index, factors such as composition of the index and prevailing market
conditions should be considered in assessing the significance of such
comparisons.
When comparing funds using reporting services, or total return and yield,
investors should take into consideration any relevant differences in funds such
as permitted portfolio composition and methods used to value portfolio
securities and compute offering price.
Advertisements and other sales literature for both classes of Shares may refer
to total return. Total return is the historic change in the value of an
investment in either of the classes based on the monthly reinvestment of
dividends over a specified period of time.
3080501B (12/93)
