NEW YORK MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH II SHARES
PROSPECTUS
The Cash II Shares of New York Municipal Cash Trust (the "Fund") offered by this
prospectus represent interests in a non-diversified portfolio of securities
which is one of a series of investment portfolios in Federated Municipal Trust
(the "Trust"), an open-end management investment company (a mutual fund). The
investment objective of the Fund is to provide current income exempt from
federal regular income tax and the personal income taxes imposed by New York
State and New York municipalities consistent with stability of principal. The
Fund invests primarily in short-term New York municipal securities, including
securities of states, territories, and possessions of the United States, which
are not issued by or on behalf of New York or its political subdivisions and
financing authorities, but which provide income exempt from the federal regular
income tax and the personal income taxes imposed by New York State and New York
municipalities. Cash II Shares are sold at net asset value, without a sales
load.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for Cash
II Shares and Institutional Service Shares dated June 30, 1994, with the
Securities and Exchange Commission. The information contained in the Statement
of Additional Information is incorporated by reference into this prospectus. You
may request a copy of the Combined Statement of Additional Information free of
charge by calling 1-800-235-4669. To obtain other information, or make inquiries
about the Fund, contact the Fund at the address listed in the back of this
prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated June 30, 1994
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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GENERAL INFORMATION 2
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INVESTMENT INFORMATION 2
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Investment Objective 2
Investment Policies 2
Acceptable Investments 3
Variable Rate Demand Notes 3
Participation Interests 3
Municipal Leases 3
Ratings 4
Credit Enhancement 4
Demand Features 4
Restricted and Illiquid Securities 4
When-Issued and Delayed Delivery
Transactions 4
Temporary Investments 5
New York Municipal Securities 5
Standby Commitments 5
New York Investment Risks 6
Non-Diversification 6
Investment Limitations 6
Regulatory Compliance 7
FEDERATED MUNICIPAL TRUST INFORMATION 7
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Management of Federated Municipal Trust 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 7
Distribution of Cash II Shares 8
Distribution and Shareholder Services
Plans 8
Other Payments to Financial Institutions 8
Administration of the Fund 8
Administrative Services 8
Custodian 9
Transfer Agent and Dividend
Disbursing Agent 9
Legal Counsel 9
Independent Auditors 9
Expenses of the Fund and
Cash II Shares 9
NET ASSET VALUE 10
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INVESTING IN CASH II SHARES 10
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Share Purchases 10
Through a Financial Institution 10
Directly from the Distributor 10
Minimum Investment Required 11
What Shares Cost 11
Subaccounting Services 11
Systematic Investment Program 11
Certificates and Confirmations 11
Dividends 12
Capital Gains 12
REDEEMING CASH II SHARES 12
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Through a Financial Institution 12
Receiving Payment 12
By Check 12
By Wire 13
Directly from the Fund 13
By Mail 13
Signatures 13
Checkwriting 13
Debit Card 13
Systematic Withdrawal Program 14
Accounts with Low Balances 14
Redemption in Kind 14
SHAREHOLDER INFORMATION 14
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Voting Rights 14
Massachusetts Partnership Law 15
TAX INFORMATION 15
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Federal Income Tax 15
New York State Tax Considerations 16
Other State and Local Taxes 16
PERFORMANCE INFORMATION 16
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OTHER CLASSES OF SHARES 17
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FINANCIAL STATEMENTS 18
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REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS 19
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ADDRESSES Inside Back Cover
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SUMMARY OF FUND EXPENSES--CASH II SHARES
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<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
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable).................................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable)....................................... None
Exchange Fee............................................................................................. None
ANNUAL CASH II SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)........................................................................ 0.22%
12b-1 Fee (2)............................................................................................ 0.00%
Total Other Expenses..................................................................................... 0.48%
Shareholder Services Fee.................................................................... 0.25%
Total Cash II Shares Operating Expenses (3)......................................................... 0.70%
</TABLE>
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(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%.
(2) The Cash II Shares have no present intention of paying or accruing the
12b-1 fee during the fiscal year ending October 31, 1994. If it were to do
so the class could pay up to 0.25% of its average daily net assets for the
12b-1 fee. See "Federated Municipal Trust Information."
(3) The Total Cash II Shares Operating Expenses in the table above are based on
expenses expected during the fiscal year ending October 31, 1994. For the
fiscal year ended October 31, 1993, prior to the reorganization of the Fund
into the Trust, the Total Cash II Shares Operating Expenses were 0.71% and
were 0.88% absent the waiver of a portion of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CASH II SHARES OF THE FUND WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN CASH II SHARES" AND "FEDERATED
MUNICIPAL TRUST INFORMATION." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000
MAY BE SUBJECT TO ADDITIONAL FEES.
<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................................................................ $7 $22 $39 $87
</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 Service Shares. See "Other Classes of Shares."
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. As of the date of this prospectus, the Trustees have
established two classes of shares of the Fund, known as Cash II Shares and
Institutional Service Shares. This prospectus relates only to Cash II Shares of
the Fund.
Cash II Shares ("Shares") of the Fund are designed to provide a cash management
vehicle for certain customers of financial institutions which would include
corporations and municipalities, as well as larger individual accounts, seeking
a high level of cash management services from the participating institution. A
minimum initial investment of $25,000 over a 90-day period is required. The Fund
may not be a suitable investment for non-New York taxpayers or retirement plans
since it invests primarily in New York municipal securities.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
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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 personal income taxes imposed by New York
State and New York municipalities consistent with stability of principal.
Interest income of the Fund that is exempt from these income taxes retains its
tax-free status when distributed to the Fund's shareholders.
While there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the investment policies described in this
prospectus. The investment objective and the policies and limitations described
below cannot be changed without approval of shareholders. Income distributed by
the Fund may not necessarily be exempt from state or municipal taxes in states
other than New York.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of short-term New York municipal securities with remaining maturities of 13
months or less at the time of purchase by the Fund. As a matter of investment
policy, which cannot be changed without approval of shareholders, the Fund
invests its assets so that at least 80% of its annual interest income is exempt
from federal regular income tax and the personal income taxes imposed by New
York State and New York municipalities. The average maturity of the securities
in the Fund's portfolio, computed on a dollar weighted basis, will be 90 days or
less. Unless indicated otherwise, the investment policies may be changed by the
Board of Trustees (the "Trustees") without the approval of shareholders.
Shareholders will be notified before any material changes in these policies
become effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued
by or on behalf of the State of New York and its political subdivisions and
financing authorities, and obligations of other states, territories and
possessions of the United States, including the District of Columbia, and any
political subdivision or financing authority of any of these, the income from
which is exempt from both federal regular income tax and New York state income
tax imposed upon non-corporate taxpayers. Examples of municipal securities
include, but are not limited to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and pre-refunded
bonds); and
participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
municipal securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS. The Fund may purchase interests in municipal
mecurities from financial institutions such as commercial and investment
banks, savings and loan associations, and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests, or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying municipal securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities. They may take the form of a lease, an installment purchase
contract, a conditional sales contract, or a participation certificate on
any of the above. Lease obligations may be subject to periodic
appropriation. If the entity does not appropriate funds for future lease
payments, the entity cannot be compelled to make such payments. In the
event of failure of appropriation, unless the participation interests are
credit enhanced, it is unlikely that the participants would be able to
obtain an acceptable substitute source of payment.
RATINGS. The municipal securities in which the Fund invests must either be
rated in one of the two highest short-term rating categories by one or more
nationally recognized statistical rating organizations ("NRSROs") or be of
comparable quality to securities having such ratings. A NRSRO's two highest
rating categories are determined without regard for sub-categories and
gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P"), MIG-1 OR MIG-2 by Moody's Investors Service, Inc.
("Moody's"), or FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service, Inc.
("Fitch") are all considered rated in one of the two highest short-term rating
categories. The Fund will follow applicable regulations in determining whether a
security rated by more than one NRSRO can be treated as being in one of the two
highest short-term rating categories; currently, such securities must be rated
by two NRSROs in one of their two highest categories. See "Regulatory
Compliance."
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit
enhanced by a guaranty, letter of credit, or insurance. The Fund typically
evaluates the credit quality and ratings of credit enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. However, credit
enhanced securities will not be treated as having been issued by the credit
enhancer for diversification purposes, unless the Fund has invested more than
10% of its assets in securities issued, guaranteed or otherwise credit enhanced
by the credit enhancer, in which case the securities will be treated as having
been issued by both the issuer and the credit enhancer. The bankruptcy,
receivership, or default of the credit enhancer will adversely affect the
quality and marketability of the underlying security.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership, or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies, but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Board of Trustees, certain restricted securities are
considered liquid. To the extent restricted securities are deemed to be
illiquid, the Fund will limit their purchase, together with other securities
considered to be illiquid, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase municipal
securities on a when-issued or delayed delivery basis. In when-issued and
delayed delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term temporary investments.
Interest income from temporary investments may be taxable to shareholders as
ordinary income. All temporary investments will satisfy the same credit quality
standards as the Fund's acceptable investments. See "Ratings" above. Temporary
investments include: obligations issued by or on behalf of municipal or
corporate issuers; marketable obligations issued or guaranteed by the U.S.
government, its agencies, or instrumentalities; instruments issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment;
repurchase agreements; and prime commercial paper rated A-1 by S&P, Prime-1 by
Moody's or F-1 by Fitch.
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax
or personal income taxes imposed by New York and New York municipalities.
NEW YORK MUNICIPAL SECURITIES
New York municipal securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
New York municipal securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS
Some securities dealers are willing to sell municipal securities to the Fund
accompanied by their commitments to repurchase the municipal securities prior to
maturity, at the Fund's option, for the amortized cost of the municipal
securities at the time of repurchase. These arrangements are not used to protect
against changes in the market value of municipal securities. They permit the
Fund, however, to remain fully invested and still provide liquidity to satisfy
redemptions. The cost of municipal securities accompanied by these "standby"
commitments could be greater than the cost of municipal securities without such
commitments. Standby commitments are not marketable or otherwise assignable and
have value only to the Fund. The default or bankruptcy of a securities dealer
giving such a commitment would not affect the quality of the municipal
securities purchased. However, without a standby
commitment, these securities could be more difficult to sell. The Fund enters
into standby commitments only with those dealers whose credit the investment
adviser believes to be of high quality.
NEW YORK INVESTMENT RISKS
Yields on New York municipal securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. Further, any adverse economic
conditions or developments affecting the State or City of New York could impact
the Fund's portfolio. The ability of the Fund to achieve its investment
objective also depends on the continuing ability of the issuers of New York
municipal securities and demand features for such securities, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. Investing in New York municipal securities which meet the
Fund's quality standards may not be possible if the State and City of New York
do not maintain their current credit ratings. An expanded discussion of the
current economic risks associated with the purchase of New York municipal
securities is contained in the Combined Statement of Additional Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified investment company because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers.
The Fund will attempt to minimize the risks associated with a non-diversified
portfolio so as not to impair its ability to stabilize its net asset value at
$1.00 per share by limiting, with respect to 75% of the Fund's total assets,
investments in one issuer to not more than 10% of the value of its total assets.
The total amount of the remaining 25% of the value of the Fund's total assets
would be invested in a single issuer if the investment adviser believes such a
strategy to be prudent. In addition, the Fund intends to comply with Subchapter
M of the Internal Revenue Code, as amended. This undertaking requires that at
the end of each quarter of the taxable year, the aggregate value of all
investments in any one issuer (except U.S. government obligations, cash, and
cash items) which exceed 5% of the Fund's total assets not exceed 50% of the
value of its total assets; beyond that, no more than 25% of its total assets are
invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 10% of the value of total assets to secure such
borrowings.
The above investment limitation cannot be changed without shareholder approval.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. In particular, the Fund
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST INFORMATION
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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 the Trust's powers except those reserved for the shareholders.
The Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser (the "Adviser"), subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to .40 of 1% of the Fund's average daily net assets. The Adviser has
undertaken to waive a portion of its advisory fee, up to the amount of its
advisory fee, to reimburse the Fund for operating expenses in excess of
limitations imposed by certain states. The Adviser may further voluntarily
waive a portion of its fee or reimburse the Fund for certain operating
expenses. The Adviser can terminate such waiver or reimbursement policy at
any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on
April 11, 1989, is a registered investment adviser under the Investment
Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the
Class A (voting) shares of Federated Investors are owned by a trust, the
Trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately
$75 billion. Federated Investors, which was founded in 1956 as Federated
Investors, Inc., develops and manages mutual funds primarily for the
financial industry. Federated Investors' track record of competitive
performance and its disciplined, risk averse investment philosophy serve
approximately 3,500 client institutions nationwide. Through these same
client institutions, individual shareholders also have access to this same
level of investment expertise.
DISTRIBUTION OF CASH II SHARES
Federated Securities Corp. is the principal distributor for Cash II Shares. It
is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the Fund will pay to the distributor an amount, computed at an annual rate of up
to .25 of 1% of the average daily net asset value of the Fund to finance any
activity which is principally intended to result in the sale of shares subject
to the Distribution Plan. The distributor may select financial institutions such
as banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales support services as agents for their clients or
customers.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Distribution Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the "Services
Plan") under which it may make payments up to 0.25 of 1% of the average daily
net asset value of the Fund to obtain certain services for shareholders and the
maintenance of shareholder accounts ("shareholder services"). The Fund has
entered into a Shareholder Services Agreement with Federated Shareholder
Services, a subsidiary of Federated Investors, under which Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Distribution and Shareholder Services Plans,
certain financial institutions may be compensated by the adviser or its
affiliates for the continuing investment of customers' assets in certain funds,
including the Fund, advised by those entities. These payments will be made
directly by the distributor or adviser from their assets, and will not be made
from the assets of the Fund or by the assessment of a sales charge on Shares.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides certain administrative personnel and services
(including certain legal and accounting services)
necessary to operate the Fund. Federated Administrative Services provides these
at an annual rate which relates to the average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors (the "Federated Funds") as
specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania and Dickstein, Shapiro & Morin, L.L.P. Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Arthur Andersen
& Co., Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND AND CASH II SHARES
Holders of Shares pay their allocable portion of Fund and Trust expenses.
The Trust expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and state securities
authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees;
legal fees of the Trust; association membership dues; and such non-recurring and
extraordinary items as may arise.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise.
At present, the only expenses allocated to the Shares as a class are expenses
under the Fund's 12b-1 Plan and Shareholder Service Plan which relate to the
Shares. However, the Board of Trustees reserves the right to allocate certain
other expenses to holders of Shares as it deems appropriate ("Class Expenses").
In any case, Class Expenses would be limited to: transfer agent fees as
identified by the transfer agent as attributable to holders of Shares; printing
and postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses, and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and
registration fees paid to state
securities commissions; expenses related to administrative personnel and
services as required to support holders of Shares; legal fees relating solely to
Shares; and Trustees' fees incurred as a result of issues relating solely to
Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per Share is determined by adding the interest of the Shares in the value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding.
The Fund, of course, cannot guarantee that its net asset value will always
remain at $1.00 per Share.
INVESTING IN CASH II SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve Wire System are open for business. Shares may be purchased through a
financial institution which has a sales agreement with the distributor or
directly from the distributor, Federated Securities Corp. The Fund reserves the
right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders through a financial institution are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Shares directly from the distributor. To do so: complete and sign the new
account form available from the Fund; enclose a check payable to New York
Municipal Cash Trust--Cash II Shares; and mail both to New York Municipal Cash
Trust, P.O. Box 8604, Boston, MA 02266-8604.
The order is considered received after the check is converted by State Street
Bank and Trust Company into federal funds. This is generally the next business
day after State Street Bank receives the check.
To purchase Shares by wire, call the Fund. All information needed will be taken
over the telephone, and the order is considered received when State Street Bank
receives payment by wire. Federal funds should be wired as follows: State Street
Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit
to: New York Municipal Cash Trust; Fund Number (this number can be found on the
account statement or by contacting the Fund); Group Number or Order Number;
Title or Name of Account; ABA Number 011000028. Shares cannot be purchased on
days on which the New York Stock Exchange is closed and on federal holidays
restricting wire transfers.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. An institutional investor's minimum investment will be calculated by
averaging all accounts it maintains with the Fund.
Individual accounts established through a bank or broker may be subject to a
different minimum investment requirement.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund.
The net asset value is determined at 12:00 noon (Eastern time), 3:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SUBACCOUNTING SERVICES
Financial institutions are encouraged to open single master accounts. However,
certain financial
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Financial
institutions holding Shares in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the financial institution with regard to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, shareholders may add to their investment on a
regular basis in a minimum amount of $500. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares. A shareholder may apply for participation in this
program through his financial institution or directly through the Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions, such as purchases and
redemptions, as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the next business day after the check is
converted, upon instruction of the transfer agent into federal funds. Unless
shareholders request cash payments on an application or by writing to Federated
Securities Corp., dividends are automatically reinvested on payment dates in
additional Shares.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses,
if any, could result in a decrease in dividends. If, for some extraordinary
reason, the Fund realizes net long-term or short-term capital gains, it will
distribute them at least once every 12 months.
REDEEMING CASH II SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemptions can be made through a financial
institution or directly from the Fund. Redemption requests must be received in
proper form.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares by calling his financial institution (such as a
bank or an investment dealer) to request the redemption. Shares will be redeemed
at the net asset value next determined after State Street Bank receives the
redemption request from the financial institution. The financial institution is
responsible for promptly submitting redemption requests and providing proper
written redemption instructions to the Fund. The financial institution may
charge customary fees and commissions for this service. If, at any time, the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders will be promptly notified.
An authorization form permitting the Fund to accept redemption requests by
telephone must first be completed. Authorization forms and information on this
service are available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail", should be considered. Telephone
redemption instructions may be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
RECEIVING PAYMENT. Pursuant to instructions from the financial institution,
redemptions will be made by check or by wire.
BY CHECK. Normally, a check for the proceeds is mailed within one business
day, but in no event more than seven days, after receipt of a proper
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
BY WIRE. Proceeds for redemption requests received before 12:00 noon
(Eastern time) will be wired the same day but will not be entitled to that
day's dividend. Redemption requests received after 12:00 noon (Eastern
time) will receive that day's dividends and will be wired the following
business day.
DIRECTLY FROM THE FUND
BY MAIL. Any shareholder may redeem Shares by sending a written request to the
transfer agent. The written request should include the shareholder's name, the
Fund name and class of shares, the account number, and the share or dollar
amount requested. If share certificates have been issued, they must be properly
endorsed and should be sent by registered or certified mail with the written
request. Shareholders should contact the Fund for assistance in redeeming by
mail.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request. Dividends are paid up to and including the day that a redemption
request is processed.
SIGNATURES. Individual shareholders requesting a redemption of more than
$50,000, a redemption of any amount to be sent to an address other than that on
record with the Fund, or a redemption payable other than to the shareholder of
record must have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
CHECKWRITING. At the shareholder's request, the transfer agent will establish a
checking account for redeeming Shares. A fee is charged for this service. With a
Fund checking account, Shares may be redeemed simply by writing a check. The
redemption will be made at the net asset value on the date that the transfer
agent presents the check to the Fund. A check may not be written to close an
account. If a shareholder wishes to redeem Shares and have the proceeds
available, a check may be written and negotiated through the shareholder's bank.
Checks should never be sent to the transfer agent to redeem Shares. Cancelled
checks are sent to the shareholder each month. For further information, contact
the Fund.
DEBIT CARD. At the shareholder's request, a debit card is available. A fee may
be charged for this service. For further information, contact Federated
Securities Corp.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $25,000, a Systematic
Withdrawal Program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an Automated Clearing House ("ACH") member.
Depending upon the amount of the withdrawal payments and the amount of dividends
paid, with respect to Shares, redemptions may reduce, and eventually deplete,
the shareholder's investment in Shares. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in Shares.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$25,000 due to shareholder redemptions.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
REDEMPTION IN KIND
The Trust is obligated to redeem Shares solely in cash up to $250,000 or 1% of
the respective class' net asset value, whichever is less, for any one
shareholder within a 90-day period. To the extent available, such securities
will be readily marketable.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Trust will pay all or a portion of
the remainder of the redemption in portfolio instruments, valued in the same way
that net asset value is determined. The portfolio instruments will be selected
in a manner that the Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
all portfolios of the Trust have equal voting rights except that, in matters
affecting only a particular portfolio or class, only shares of that portfolio or
class are entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument that the Trust or its
Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for obligations of
the Trust, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons, and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal
bonds, including private activity bonds. Thus, should it purchase any such
bonds, a portion of the Fund's dividends may be treated as a tax preference
item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of the taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
NEW YORK STATE TAX CONSIDERATIONS
In the opinion of White & Case, special New York tax counsel to the Fund, income
to the Fund that is exempt from New York State personal income tax and personal
income taxes imposed by New York municipalities will retain its exempt status
when distributed to New York shareholders. Dividends of the Fund are not exempt
from the New York taxes payable by corporations.
OTHER STATE AND LOCAL TAXES
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from regular state income taxes of any state
or local taxing authority. State laws differ on this issue, and shareholders are
urged to consult their own tax advisers regarding the status of their accounts
under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield, effective yield, and
tax-equivalent yield for Cash II Shares.
The yield of Cash II Shares represents the annualized rate of income earned on
an investment in Cash II Shares over a seven-day period. It is the annualized
dividends earned during the period on the investment, shown as a percentage of
the investment. The effective yield is calculated similarly to the yield, but,
when annualized, the income earned by an investment in Cash II Shares is assumed
to be reinvested daily. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment. The
tax-equivalent yield of Cash II Shares is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that Cash II Shares would have had to
earn to equal their actual yield, assuming a specific tax rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Cash II Shares after reinvesting all income distributions. It
is calculated by dividing that change by the initial investment and is expressed
as a percentage.
Yield, effective yield and tax equivalent yield will be calculated separately
for Cash II Shares and Institutional Service Shares. Because Cash II Shares and
Institutional Service Shares are likely subject to different shareholder
servicing fees, the yield, effective yield, and tax-equivalent yield for each
class of shares for the same period will differ. Specifically, because the
shareholder servicing fee for Cash II Shares should exceed the shareholder
servicing fee for Institutional Service Shares, the yield, effective yield, and
tax-equivalent yield of Cash II Shares for the same period will be lower than
that of Institutional Service Shares based upon the difference in the amount of
the shareholder servicing fee.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Service Shares are sold to banks and other institutions that hold
assets for individuals, trusts, estates, or partnerships. Institutional Service
Shares are sold at net asset value without a sales charge. Investments in
Institutional Service Shares are subject to a minimum initial investment of
$25,000.
Like Cash II Shares, Institutional Service Shares are distributed pursuant to a
12b-1 Plan adopted by the Trust. The distributor is paid a fee of up to .25 of
1% of the average daily net assets of the Institutional Service Shares. In
addition, Institutional Service Shares, like Cash II Shares, may be sold
pursuant to a Shareholder Services Plan.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation depending upon which class of shares
of the Fund is sold. The distributor may, in addition to fees paid pursuant to
the Rule 12b-1 Plan and the Shareholder Service Plan, pay a fee to a financial
institution or broker for administrative services provided to the Institutional
Service Shares class. Any fee paid by the distributor for such administrative
services will not be an expense of the class, but will be reimbursed to the
distributor by the investment adviser.
The difference between class expenses and distribution expenses borne by shares
of each respective class will cause the amount of dividends payable to a
particular class of shares to exceed the amount of dividends payable to another
class of shares whose distribution expenses are greater. Because Institutional
Service Shares are expected to incur a lower shareholder servicing fee than Cash
II Shares, the Institutional Service Shares' dividends will exceed the dividends
paid by Cash II Shares.
The stated advisory fee is the same for each class of shares.
NEW YORK MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
MAY 24, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------------
Investment in Mutual Fund (1) $ 200
- ---------------------------------------------------------------------------------------------------------
LIABILITIES: --
- --------------------------------------------------------------------------------------------------------- ---------
NET ASSETS for 200 shares of beneficial interest outstanding $ 200
- --------------------------------------------------------------------------------------------------------- ---------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- ---------------------------------------------------------------------------------------------------------
Cash II Shares ($100 / 100 shares of beneficial interest outstanding) $1.00
- --------------------------------------------------------------------------------------------------------- ---------
Institutional Service Shares ($100 / 100 shares of beneficial interest outstanding) $1.00
- --------------------------------------------------------------------------------------------------------- ---------
</TABLE>
Notes:
(1) Invested exclusively in New York Municipal Cash Trust, 200 shares at $1.00
net asset value. See Note 2.
(2) The Fund was established as a portfolio of Federated Municipal Trust
("Trust") by an amendment to the registration statement of the Trust,
effective with the Securities and Exchange Commission on May 30, 1994. The
Fund has had no operations to date other than those relating to
organizational matters, including the issuance on May 24, 1994, of 200
shares at $1.00 per share to Federated Management, the "Adviser" to the
Fund. New York Municipal Cash Trust provides two classes of shares
("Institutional Service Shares" and "Cash II Shares"). Each class of shares
is sold pursuant to a distribution plan ("Plan") adopted in accordance with
Investment Company Act Rule 12b-1 and Shareholder Services Plan. The Fund
will not initiate an offering of its shares until the consummation of a
proposed reorganization of New York Municipal Cash Trust, a separately
registered management investment company, into the Fund. Expenses of
organization incurred by the Fund, $34,100, were borne initially by the
Adviser. The Fund has agreed to reimburse the Adviser for the organization
expenses initially borne by the Adviser during the five-year period
following the date the Fund's registration statement first became
effective.
(3) Reference is made to "Management of the Trust," "Administration of the
Fund," "Distribution and Shareholder Services Plans," and "Tax Information"
in this Prospectus for a description of the investment advisory fee,
administrative and other services and federal tax aspects of the Fund.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST (New York Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of the New
York Municipal Cash Trust (an investment portfolio of Federated Municipal Trust,
a Massachusetts business trust), as of May 24, 1994. This financial statement is
the responsibility of the Trust's management. Our responsiblity is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the aforementioned financial statement presents fairly, in all
material respects, the financial position of the New York Municipal Cash Trust
(an investment portfolio of Federated Municipal Trust), as of May 24, 1994, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania
May 24, 1994
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Municipal Trust
New York Municipal Cash Trust Federated Investors Tower
Cash II Shares Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts 02266-8604
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditor
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh,
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
NEW YORK MUNICIPAL
CASH TRUST
CASH II SHARES
PROSPECTUS
A Non-Diversified Portfolio of Federated
Municipal Trust, An Open End,
Management Investment Company
June 30, 1994
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
G00319-02-CII (6/94)
NEW YORK MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of New York Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a non-diversified portfolio of
securities which is one of a series of investment portfolios in Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The investment objective of the Fund is to provide current income
exempt from federal regular income tax and the personal income taxes imposed by
New York State and New York municipalities consistent with stability of
principal. The Fund invests primarily in short-term New York municipal
securities, including securities of states, territories, and possessions of the
United States, which are not issued by or on behalf of New York or its political
subdivisions and financing authorities, but which provide income exempt from the
federal regular income tax and the personal income taxes imposed by New York
State and New York municipalities. Institutional Service Shares are sold at net
asset value, without a sales load.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for
Institutional Service Shares and Cash II Shares dated June 30, 1994, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information, or make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated June 30, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES--
INSTITUTIONAL SERVICE SHARES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Acceptable Investments 2
Variable Rate Demand Notes 3
Participation Interests 3
Municipal Leases 3
Ratings 4
Credit Enhancement 4
Demand Features 4
Restricted and Illiquid Securities 4
When-Issued and Delayed Delivery
Transactions 4
Temporary Investments 5
New York Municipal Securities 5
Standby Commitments 5
New York Investment Risks 6
Non-Diversification 6
Investment Limitations 6
Regulatory Compliance 7
FEDERATED MUNICIPAL TRUST INFORMATION 7
- ------------------------------------------------------
Management of the Trust 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 7
Distribution of Institutional Service Shares 8
Distribution and Shareholder Services
Plans 8
Other Payments to Financial Institutions 8
Administration of the Fund 8
Administrative Services 8
Custodian 9
Transfer Agent and Dividend
Disbursing Agent 9
Legal Counsel 9
Independent Auditors 9
Expenses of the Fund and
Institutional Service Shares 9
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SERVICE SHARES 10
- ------------------------------------------------------
Share Purchases 10
By Wire 10
By Mail 10
Minimum Investment Required 10
What Shares Cost 11
Subaccounting Services 11
Certificates and Confirmations 11
Dividends 11
Capital Gains 11
REDEEMING INSTITUTIONAL SERVICE SHARES 12
- ------------------------------------------------------
Telephone Redemption 12
Written Requests 12
Signatures 12
Receiving Payment 13
Accounts with Low Balances 13
Redemption in Kind 13
SHAREHOLDER INFORMATION 13
- ------------------------------------------------------
Voting Rights 13
Massachusetts Partnership Law 14
TAX INFORMATION 14
- ------------------------------------------------------
Federal Income Tax 14
New York State Tax Considerations 15
Other State and Local Taxes 15
PERFORMANCE INFORMATION 15
- ------------------------------------------------------
OTHER CLASSES OF SHARES 16
- ------------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------------
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS 18
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES--
INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
<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
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)................................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable)...................................... None
Exchange Fee............................................................................................ None
ANNUAL INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)......................................................................... 0.22%
12b-1 Fee (2)............................................................................................. 0.00%
Total Other Expenses...................................................................................... 0.33%
Shareholder Services Fee (3)................................................................. 0.10%
Total Institutional Service Shares Operating Expenses (4)............................................. 0.55%
</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 Institutional Service Shares have no present intention of paying or
accruing the 12b-1 fee during the fiscal year ending October 31, 1994. If it
were to do so, the class could pay up to 0.25% of its average daily net
assets for the 12b-1 fee. See "Federated Municipal Trust Information."
(3) The maximum Shareholder Services Fee is 0.25%.
(4) The Total Institutional Service Shares Operating Expenses in the table above
are based on expenses expected during the fiscal year ending October 31,
1994. For the fiscal year ended October 31, 1993, prior to the
reorganization of the Fund into the Trust, the Total Institutional Service
Shares Operating Expenses were 0.54% and were 0.71% absent the waiver of a
portion of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF
THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE
DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL
SERVICE SHARES" AND "FEDERATED MUNICIPAL TRUST INFORMATION." WIRE-TRANSFERRED
REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL FEES.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1)
5% annual return and (2) redemption at the end of each time period....... $6 $18 $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
the Institutional Service Shares of the Fund. The Fund also offers another class
of shares called Cash II Shares. See "Other Classes of Shares."
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated
September 1, 1989. The Declaration of Trust permits the Trust to offer separate
series of shares of beneficial interest representing interests in separate
portfolios of securities. The shares in any one portfolio may be offered in
separate classes. As of the date of this prospectus, the Trustees have
established two classes of shares of the Fund, known as Institutional Service
Shares and Cash II Shares. This prospectus relates only to Institutional Service
Shares of the Fund.
Institutional Service Shares ("Shares") of the Fund are designed primarily for
banks and other institutions that hold assets for individuals, trusts, estates,
or partnerships. A minimum initial investment of $25,000 over a 90-day time
period is required. The Fund may not be a suitable investment for non-New York
taxpayers or retirement plans since it invests primarily in New York municipal
securities.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal regular income tax and the personal income taxes imposed by New York
State and New York municipalities consistent with stability of principal.
Interest income of the Fund that is exempt from these income taxes retains its
tax-free status when distributed to the Fund's shareholders.
While there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the investment policies described in this
prospectus. The investment objective and the policies and limitations described
below cannot be changed without approval of shareholders. Income distributed by
the Fund may not necessarily be exempt from state or municipal taxes in states
other than New York.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of short-term New York municipal securities with remaining maturities of 13
months or less at the time of purchase by the Fund. As a matter of investment
policy, which cannot be changed without approval of shareholders, the Fund
invests its assets so that at least 80% of its annual interest income is exempt
from federal regular income tax and the personal income taxes imposed by New
York State and New York municipalities. The average maturity of the securities
in the Fund's portfolio, computed on a dollar weighted basis, will be 90 days or
less. Unless indicated otherwise, the investment policies may be changed by the
Board of Trustees (the "Trustees") without the approval of shareholders.
Shareholders will be notified before any material changes in these policies
become effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued
by or on behalf of the State of New York and its political subdivisions and
financing authorities, and obligations of other
states, territories and possessions of the United States, including the District
of Columbia, and any political subdivision or financing authority of any of
these, the income from which is exempt from both federal regular income tax and
New York state income tax imposed upon non-corporate taxpayers. Examples of
municipal securities include, but are not limited to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and pre-refunded
bonds) and leases; and
participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
municipal securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS. The Fund may purchase interests in municipal
securities from financial institutions such as commercial and investment
banks, savings and loan associations, and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests, or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying municipal securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities. They may take the form of a lease, an installment purchase
contract, a conditional sales contract, or a participation certificate on
any of the above. Lease obligations may be subject to periodic
appropriation. If the entity does not appropriate funds for future lease
payments, the entity cannot be compelled to make such payments. In the
event of failure of appropriation, unless the participation interests are
credit enhanced, it is unlikely that the participants would be able to
obtain an acceptable substitute source of payment.
RATINGS. The municipal securities in which the Fund invests must either be
rated in one of the two highest short-term rating categories by one or more
nationally recognized statistical rating organizations ("NRSROs") or be of
comparable quality to securities having such ratings. A NRSRO's two highest
rating categories are determined without regard for sub-categories and
gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc.
("Moody's"), or FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service, Inc.
("Fitch") are all considered rated in one of the two highest short-term rating
categories. The Fund will follow applicable regulations in determining whether a
security rated by more than one NRSRO can be treated as being in one of the two
highest short-term rating categories; currently, such securities must be rated
by two NRSROs in one of their two highest categories. See "Regulatory
Compliance."
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit
enhanced by a guaranty, letter of credit, or insurance. The Fund typically
evaluates the credit quality and ratings of credit enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. However, credit
enhanced securities will not be treated as having been issued by the credit
enhancer for diversification purposes, unless the Fund has invested more than
10% of its assets in securities issued, guaranteed or otherwise credit enhanced
by the credit enhancer, in which case the securities will be treated as having
been issued by both the issuer and the credit enhancer. The bankruptcy,
receivership, or default of the credit enhancer will adversely affect the
quality and marketability of the underlying security.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership, or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies, but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Board of Trustees, certain restricted securities are
considered liquid. To the extent restricted securities are deemed to be
illiquid, the Fund will limit their purchase, together with other securities
considered to be illiquid, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase municipal
securities on a when-issued or delayed delivery basis. In when-issued and
delayed delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term temporary investments.
Interest income from temporary investments may be taxable to shareholders as
ordinary income. All temporary investments will satisfy the same credit quality
standards as the Fund's acceptable investments. See "Ratings" above. Temporary
investments include: obligations issued by or on behalf of municipal or
corporate issuers; marketable obligations issued or guaranteed by the U.S.
government, its agencies, or instrumentalities; instruments issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment;
repurchase agreements; and prime commercial paper rated A-1 by S&P, Prime-1 by
Moody's, or F-1 by Fitch.
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax
or personal income taxes imposed by New York and New York municipalities.
NEW YORK MUNICIPAL SECURITIES
New York municipal securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
New York municipal securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS
Some securities dealers are willing to sell municipal securities to the Fund
accompanied by their commitments to repurchase the municipal securities prior to
maturity, at the Fund's option, for the amortized cost of the municipal
securities at the time of repurchase. These arrangements are not used to protect
against changes in the market value of municipal securities. They permit the
Fund, however, to remain fully invested and still provide liquidity to satisfy
redemptions. The cost of municipal securities accompanied by these "standby"
commitments could be greater than the cost of municipal securities without such
commitments. Standby commitments are not marketable or otherwise assignable and
have value only to the Fund. The default or bankruptcy of a securities dealer
giving such a commitment would not affect the quality of the municipal
securities purchased. However, without a standby
commitment, these securities could be more difficult to sell. The Fund enters
into standby commitments only with those dealers whose credit the investment
adviser believes to be of high quality.
NEW YORK INVESTMENT RISKS
Yields on New York municipal securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. Further, any adverse economic
conditions or developments affecting the State or City of New York could impact
the Fund's portfolio. The ability of the Fund to achieve its investment
objective also depends on the continuing ability of the issuers of New York
municipal securities and demand features for such securities, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. Investing in New York municipal securities which meet the
Fund's quality standards may not be possible if the State and City of New York
do not maintain their current credit ratings. An expanded discussion of the
current economic risks associated with the purchase of New York municipal
securities is contained in the Combined Statement of Additional Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified investment company because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers.
The Fund will attempt to minimize the risks associated with a non-diversified
portfolio so as not to impair its ability to stabilize its net asset value at
$1.00 per share by limiting, with respect to 75% of the Fund's total assets,
investments in one issuer to not more than 10% of the value of its total assets.
The total amount of the remaining 25% of the value of the Fund's total assets
would be invested in a single issuer if the investment adviser believes such a
strategy to be prudent. In addition, the Fund intends to comply with Subchapter
M of the Internal Revenue Code, as amended. This undertaking requires that at
the end of each quarter of the taxable year, the aggregate value of all
investments in any one issuer (except U.S. government obligations, cash, and
cash items) which exceed 5% of the Fund's total assets not exceed 50% of the
value of its total assets; beyond that, no more than 25% of its total assets are
invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 10% of the value of total assets to secure such
borrowings.
The above investment limitation cannot be changed without shareholder approval.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. In particular, the Fund
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF FEDERATED MUNICIPAL TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of
Trustees is responsible for managing the business affairs of the Trust and for
exercising all the powers of the Trust except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser (the "Adviser"), subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to .40 of 1% of the Fund's average daily net assets. The Adviser has
undertaken to waive a portion of its advisory fee, up to the amount of its
advisory fee, to reimburse the Fund for operating expenses in excess of
limitations imposed by certain states. The Adviser may further voluntarily
waive a portion of its fee or reimburse the Fund for certain operating
expenses. The Adviser can terminate such waiver or reimbursement policy at
any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on
April 11, 1989, is a registered investment adviser under the Investment
Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the
Class A (voting) shares of Federated Investors are owned by a trust, the
Trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately
$75 billion. Federated Investors, which was founded in 1956 as Federated
Investors, Inc., develops and manages mutual funds primarily for the
financial industry. Federated Investors' track record of competitive
performance and its disciplined, risk averse investment philosophy serve
approximately 3,500 client institutions nationwide. Through these same
client institutions, individual shareholders also have access to this same
level of investment expertise.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares. It is a Pennsylvania corporation organized on November 14, 1969,
and is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the Fund will pay to the distributor an amount, computed at an annual rate of up
to .25 of 1% of the average daily net asset value of the Fund to finance any
activity which is principally intended to result in the sale of shares subject
to the Distribution Plan. The distributor may select financial institutions such
as banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales support services as agents for their clients or
customers.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Funds, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Distribution Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the "Services
Plan") under which it may make payments up to 0.25 of 1% of the average daily
net asset value of the Fund to obtain certain services for shareholders and the
maintenance of shareholder accounts ("shareholder services"). The Fund has
entered into a Shareholder Services Agreement with Federated Shareholder
Services, a subsidiary of Federated Investors, under which Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Distribution and Shareholder Services Plans,
certain financial institutions may be compensated by the adviser or its
affiliates for the continuing investment of customers' assets in certain funds,
including the Fund, advised by those entities. These payments will be made
directly by the distributor or adviser from their assets, and will not be made
from the assets of the Fund or by the assessment of a sales charge on Shares.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides certain administrative personnel and services
(including certain legal and accounting services)
necessary to operate the Fund. Federated Administrative Services provides these
at an annual rate which relates to the average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors (the "Federated Funds") as
specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania and Dickstein, Shapiro & Morin, L.L.P., Washington,
D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Arthur
Andersen, Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND AND INSTITUTIONAL SERVICE SHARES
Holders of Shares pay their allocable portion of Fund and Trust expenses.
The Trust expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and state securities
authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees;
legal fees of the Trust; association membership dues; and such non-recurring and
extraordinary items as may arise.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise.
At present, the only expenses allocated to the Shares as a class are expenses
under the Fund's 12b-1 Plan and Shareholder Service Plan which relate to the
Shares. However, the Board of Trustees reserves the right to allocate certain
other expenses to holders of Shares as it deems appropriate ("Class Expenses").
In any case, Class Expenses would be limited to: transfer agent fees as
identified by the transfer agent as attributable to holders of Shares; printing
and postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses, and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and
registration fees paid to state
securities commissions; expenses related to administrative personnel and
services as required to support holders of Shares; legal fees relating solely to
Shares; and Trustees' fees incurred as a result of issues relating solely to
Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of its Shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per Share is determined by adding the interest of the Shares in the value
of all securities and other assets of the Fund, subtracting the interest of the
Shares in the liabilities of the Fund and those attributable to Shares, and
dividing the remainder by the total number of Shares outstanding.
The Fund cannot guarantee that its net asset value will always remain at $1.00
per Share.
INVESTING IN INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve Wire System are open. Shares may be purchased either by wire or mail.
The Fund reserves the right to reject any purchase request.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 3:00
P.M. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 P.M. (Eastern
time) that same day. Federal funds should be wired as follows: State Street Bank
and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
New York Municipal Cash Trust--Institutional Service Shares; Fund Number (this
number can be found on the account statement or by contacting the Fund); Group
or Order Number; Nominee or Institution Name; ABA Number 011000028. Shares
cannot be purchased on days on which the New York Stock Exchange is closed and
on federal holidays restricting wire transfers.
BY MAIL. To purchase Shares by mail, send a check made payable to New York
Municipal Cash Trust--Institutional Service Shares to Federated Services Company
c/o State Street Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts
02266-8602. Orders by mail are considered received after payment by check is
converted by State Street Bank into federal funds. This is normally the next
business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund.
Individual accounts established through a non-affiliated bank or broker may be
subject to a different minimum investment requirement.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund.
The net asset value is determined at 12:00 noon (Eastern time), 3:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Institutions holding
Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass
through subaccounting fees as part of or in addition to normal trust or agency
account fees. They may also charge fees for other services provided which may be
related to the ownership of Shares. This prospectus should, therefore, be read
together with any agreement between the customer and the institution with regard
to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions, such as purchases and
redemptions, as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the day after the check is converted, upon
instruction of the transfer agent, into federal funds. Dividends are
automatically reinvested on payment dates in additional Shares unless cash
payments are requested by contacting the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses,
if any, could result in a decrease in dividends. If for some extraordinary
reason the Fund realizes net long-term or short-term capital gains, it will
distribute them at least once every 12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund before 12:00 noon
(Eastern time). The proceeds will be wired the same day to the shareholder's
account at a domestic commercial bank that is a member of the Federal Reserve
System. If, at any time, the Fund shall determine it necessary to terminate or
modify this method of redemption, shareholders would be promptly notified.
A daily dividend will be paid on shares redeemed if the redemption request is
received after 12:00 noon (Eastern time). However, the proceeds are not wired
until the following business day. Redemption requests received before 12:00 noon
(Eastern time) will be paid the same day, but will not be entitled to that day's
dividend.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Written Requests," should be considered.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name, his account number,
and the share or dollar amount requested. If share certificates have been
issued, they must be properly endorsed and should be sent by registered or
certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Seurities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
REDEMPTION IN KIND
The Trust is obligated to redeem shares solely in cash up to $250,000 or 1% of
the respective class' net asset value, whichever is less, for any one
shareholder within a 90-day period. To the extent available, such securities
will be readily marketable.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Trust will pay
all or a portion of the remainder of the redemption in portfolio instruments,
valued in the same way that net asset value is determined. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
all portfolios of the Trust have equal voting rights except that, in matters
affecting only a particular portfolio or class, only shares of that portfolio or
class are entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
shareholders of the Fund, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons, and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends
are included in a corporation's "adjusted current earnings." The corporate
alternative minimum tax treats 75% of the excess of the taxpayer's pre-tax
"adjusted current earnings" over the taxpayer's alternative minimum taxable
income as a tax preference item. "Adjusted current earnings" is based upon the
concept of a corporation's "earnings and profits." Since "earnings and profits"
generally includes the full amount of any Fund dividend, and alternative minimum
taxable income does not include the portion of the Fund's dividend attributable
to municipal bonds which are not private activity bonds, the difference will be
included in the calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
NEW YORK STATE TAX CONSIDERATIONS
In the opinion of White & Case, special New York tax counsel to the Fund, income
to the Fund that is exempt from New York State personal income tax and personal
income taxes imposed by New York municipalities will retain its exempt status
when distributed to New York shareholders. Dividends of the Fund are not exempt
from the New York taxes payable by corporations.
OTHER STATE AND LOCAL TAXES
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from regular state income taxes of any state
or local taxing authority. State laws differ on this issue, and shareholders are
urged to consult their own tax advisers regarding the status of their accounts
under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield, effective yield, and
tax-equivalent yield for Institutional Service Shares.
The yield of Institutional Service Shares represents the annualized rate of
income earned on an investment in Institutional Service Shares over a seven-day
period. It is the annualized dividends earned during the period on the
investment, shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but, when annualized, the income earned by an
investment in Institutional Service Shares is assumed to be reinvested daily.
The effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. The tax-equivalent yield of
Institutional Service Shares is calculated similarly to the yield, but is
adjusted to reflect the taxable yield that Institutional Service Shares would
have had to earn to equal their actual yield, assuming a specific tax rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Institutional Service Shares
after reinvesting all income distributions. It is calculated by dividing that
change by the initial investment and is expressed as a percentage.
Yield, effective yield, and tax-equivalent yield will be calculated separately
for Institutional Service Shares and Cash II Shares. Because Institutional
Service Shares and Cash II Shares are likely subject to different shareholder
servicing fees, the yield, effective yield, and tax-equivalent yield for each
class of shares for the same period will differ. Specifically, because the
shareholder servicing fee for Cash II Shares should exceed the shareholder
servicing fee for Institutional Service Shares, the yield, effective yield, and
tax-equivalent yield for the same period will be lower than that of
Institutional Service Shares based upon the difference in the amount of the
shareholder servicing fee.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Cash II Shares are sold to corporations, municipalities, and individual accounts
seeking a high level of cash management services from the participating
institutions. Cash II Shares are sold at net asset value, without a sales
charge. Investments in Cash II Shares are also subject to a minimum initial
investment of $25,000.
Like Institutional Service Shares, Cash II Shares are distributed pursuant to a
12b-1 Plan adopted by the Trust. The distributor is paid a fee of up to .25 of
1% of the average daily net assets of the Cash II Shares. In addition, Cash II
Shares, like Institutional Service Shares, may be sold pursuant to a Shareholder
Services Plan.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation depending upon which class of shares
of the Fund is sold. The distributor may, in addition to fees paid pursuant to
the Rule 12b-1 Plan and the Shareholder Service Plan, pay a fee to a financial
institution or broker for administrative services provided to the Institutional
Service class. Any fee paid by the distributor for such administrative services
will not be an expense of the class but will be reimbursed to the distributor by
the investment adviser.
The difference between class expenses and distribution expenses borne by shares
of each respective class will cause the amount of dividends payable to a
particular class of shares to exceed the amount of dividends payable to another
class of shares whose distribution expenses are greater. Thus, because
Institutional Service Shares are expected to incur a lower shareholder servicing
fee than Cash II Shares, the Institutional Service Shares' dividends will exceed
the dividends for the Cash II Shares.
The stated advisory fee is the same for each class of shares.
NEW YORK MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
MAY 24, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------------
Investment in Mutual Fund (1) $ 200
- ---------------------------------------------------------------------------------------------------------
LIABILITIES: --
- --------------------------------------------------------------------------------------------------------- ---------
NET ASSETS for 200 shares of beneficial interest outstanding $ 200
- --------------------------------------------------------------------------------------------------------- ---------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- ---------------------------------------------------------------------------------------------------------
Cash II Shares ($100 / 100 shares of beneficial interest outstanding) $ 1.00
- --------------------------------------------------------------------------------------------------------- ---------
Institutional Service Shares ($100 / 100 shares of beneficial interest outstanding) $ 1.00
- --------------------------------------------------------------------------------------------------------- ---------
</TABLE>
Notes:
(1) Invested exclusively in New York Municipal Cash Trust, 200 shares at $1.00
net asset value. See Note 2.
(2) The Fund was established as a portfolio of Federated Municipal Trust
("Trust") by an amendment to the registration statement of the Trust,
effective with the Securities and Exchange Commission on May 30, 1994. The
Fund has had no operations to date other than those relating to
organizational matters, including the issuance on May 24, 1994, of 200
shares at $1.00 per share to Federated Management, the "Adviser" to the
Fund. New York Municipal Cash Trust provides two classes of shares
("Institutional Service Shares" and "Cash II Shares"). Each class of shares
is sold pursuant to a distribution plan ("Plan") adopted in accordance with
Investment Company Act Rule 12b-1 and Shareholder Services Plan. The Fund
will not initiate an offering of its shares until the consummation of a
proposed reorganization of New York Municipal Cash Trust, a separately
registered management investment company, into the Fund. Expenses of
organization incurred by the Fund, $34,100, were borne initially by the
Adviser. The Fund has agreed to reimburse the Adviser for the organization
expenses initially borne by the Adviser during the five-year period
following the date the Fund's registration statement first became
effective.
(3) Reference is made to "Management of the Trust," "Administration of the
Fund," "Distribution and Shareholder Services Plans," and "Tax Information"
in the Prospectus for a description of the investment advisory fee,
administrative and other services and federal tax aspects of the Fund.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST (New York Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of the New
York Municipal Cash Trust (an investment portfolio of Federated Municipal Trust,
a Massachusetts business trust), as of May 24, 1994. This financial statement is
the responsibility of the Trust's management. Our responsiblity is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
managment, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the aforementioned financial statement presents fairly, in all
material respects, the financial position of the New York Municipal Cash Trust
(an investment portfolio of Federated Municipal Trust), as of May 24, 1994, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania
May 24, 1994
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Municipal Trust
New York Municipal Cash Trust Federated Investors Tower
Institutional Service Shares Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditor
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
NEW YORK MUNICIPAL
CASH TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Non-Diversified Portfolio of Federated
Municipal Trust, an Open-End
Management Investment Company
June 30, 1994
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-37779
G00319-01-55 (6/94)
NEW YORK MUNICIPAL CASH TRUST
CASH II SHARES
INSTITUTIONAL SERVICE SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with
the respective prospectus for Cash II Shares and Institutional Service
Shares of New York Municipal Cash Trust (the "Fund") dated June 30,
1994. This Statement is not a prospectus itself. To receive a copy of
either prospectus, write or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated June 30, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Acceptable Investments 1
When-Issued and Delayed Delivery
Transactions 1
Temporary Investments 1
New York Investment Risks 2
Investment Limitations 2
Concentration of Investments 4
TRUST MANAGEMENT 4
- ---------------------------------------------------------------
Officers and Trustees 4
The Funds 6
Trust Ownership 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 7
- ---------------------------------------------------------------
Adviser to the Fund 7
Advisory Fees 7
ADMINISTRATIVE ARRANGEMENTS 8
- ---------------------------------------------------------------
ADMINISTRATIVE SERVICES 8
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 8
- ---------------------------------------------------------------
PURCHASING SHARES 9
- ---------------------------------------------------------------
Distribution and Shareholder
Services Plans 9
Conversion to Federal Funds 9
DETERMINING NET ASSET VALUE 9
- ---------------------------------------------------------------
Use of the Amortized Cost Method 9
REDEEMING SHARES 10
- ---------------------------------------------------------------
Redemption in Kind 10
TAX STATUS 11
- ---------------------------------------------------------------
The Fund's Tax Status 11
YIELD 11
- ---------------------------------------------------------------
EFFECTIVE YIELD 11
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 11
- ---------------------------------------------------------------
Tax Equivalency Table 11
PERFORMANCE COMPARISONS 12
- ---------------------------------------------------------------
APPENDIX 13
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was
established as a Massachusetts business trust under a Declaration of Trust dated
September 1, 1989.
Shares of the Fund are offered in two classes, Cash II Shares and Institutional
Service Shares (individually and collectively referred to as "Shares"). This
Combined Statement of Additional Information relates to the above-mentioned
Shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income exempt from federal
regular income tax and the personal income taxes imposed by New York State and
New York municipalities consistent with stability of principal. This investment
policy and the objective stated above cannot be changed without approval of
shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of New
York and of other states, territories and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and New York state income
tax imposed upon non-corporate taxpayers ("Municipal Securities"). When
determining whether a Municipal Security presents minimal credit risks, the
investment adviser considers the creditworthiness of the issuer of a New York
Municipal Security, the issuer of a demand feature if the Fund has the
unconditional right to demand payment for the Municipal Securities, or the
guarantor of payment by either of those issuers.
If a security loses its rating or the security's rating is reduced below the
required minimum after the Fund purchased it, the Fund is not required to sell
the security. The investment adviser considers this event, however, in its
determination of whether the Fund should continue to hold the security in its
portfolio. If ratings made by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("Standard & Poor's") change because of changes in
those organizations or in their rating systems, the Fund will try to use
comparable ratings or standards in accordance with the investment policies
described in the Fund's prospectus.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated on the Fund's records at the trade date. These
securities are marked to market daily and maintained until the transaction is
settled.
The Fund may engage in these transactions to an extent that would cause the
segregation of an amount up to 20% of the value of its total assets.
TEMPORARY INVESTMENTS
The Fund may also invest temporarily in high quality investments during times of
unusual market conditions for defensive purposes. During the last fiscal year,
the Fund did not invest in temporary investments and does not presently intend
to do so in the current fiscal year.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale
to repurchase them at a mutually agreed upon time and price within one
year from the date of acquisition. The Fund or its custodian will take
possession of the securities subject to repurchase agreements and these
securities will be marked to market daily. To the extent that the
original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund
believes that under the regular procedures normally in effect for custody
of the Fund's portfolio securities subject to repurchase agreements, a
court of competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund will only enter
into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are found by the Fund's
investment adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees").
From time to time, such as when suitable New York Municipal Securities are not
available, the Fund may invest a portion of its assets in cash. Any portion of
the Fund's assets maintained in cash will reduce the amount of assets in New
York Municipal Securities and thereby reduce the Fund's yield.
NEW YORK INVESTMENT RISKS
The Fund invests in obligations of New York issuers which results in the Fund's
performance being subject to risks associated with the overall conditions
present within New York (the "State"). The following information is a brief
summary of the recent prevailing economic conditions and a general summary of
the state's financial status. This information is based on official statements
relating to securities that have been offered by New York issuers and from other
sources believed to be accurate but should not be relied upon as a complete
description of all relevant information.
The State has achieved fiscal balance for the last few years after large
deficits in the middle and late 1980's. Growing social service needs, education
and Medicare expenditures have been the areas of largest growth while prudent
programs cuts and increases in revenues through service fees has enabled the
state's budget to remain within balance for the last few years. While the state
still has a large accumulated deficit as a percentage of its overall budget, the
fiscal performance in recent years has demonstrated a changed political
environment that has resulted in realistic revenue and expenditure projections
to achieve financially favorable results. The State also benefits from a high
level of per capita income that is well above the national average and from the
significant amounts international trade.
New York's economy is large and diverse. While several upstate counties benefit
from agriculture, manufacturing and high technology industries, New York City
nonetheless still dominates the State's economy through its international
importance in economic sectors such as advertising, finance, banking, and
international trade. The state's economy though is still stagnant after the late
1980's recession that resulted in the loss of over 400,000 jobs in the New York
City metropolitan area alone. Any major changes to the financial condition of
the City would ultimately have an affect on the State.
The overall financial condition of the state can also be illustrated by changes
of its debt ratings. During the period in which the state experienced financial
difficulties, its general obligation long-term debt ratings as determined by
Moody's and S&P decreased from A1 and A, respectively, to A and A-.
The Fund's concentration in securities issued by the State and its political
subdivisions provides a greater level of risk than a fund which is diversified
across numerous states and municipal entities. The ability of the State or its
municipalities to meet their obligations will depend on the availability of tax
and other revenues; economic, political, and demographic conditions within the
State; and the underlying fiscal condition of the State and its municipalities.
INVESTMENT LIMITATIONS
The Fund will not change any of the investment limitations described below
without approval of shareholders.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for the
clearance of transactions.
BORROWING MONEY
The Fund will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in
excess of 5% of the value of its total assets or in an amount up to
one-third of the value of its total assets, including the amount
borrowed, in order to meet redemption requests without immediately
selling portfolio instruments. This borrowing provision is not for
investment leverage but solely to facilitate management of the portfolio
by enabling the Fund to meet redemption requests when the liquidation of
portfolio instruments would be inconvenient or disadvantageous.
Interest paid on borrowed funds will serve to reduce the Fund's income.
The Fund will liquidate any such borrowings as soon as possible and may
not purchase any portfolio instruments while any borrowings are
outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding 10% of the value of total assets at the time
of the pledge.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, although it may invest in
New York municipal securities secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES AND MINERALS
The Fund will not purchase or sell commodities, commodity contracts, or
oil, gas, or other mineral exploration or development programs.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
MAKING LOANS
The Fund will not make loans except that it may acquire publicly or
nonpublicly issued New York municipal securities, in accordance with its
investment objective, policies, and limitations.
ACQUIRING SECURITIES
The Fund will not acquire the voting securities of any issuer, except as
part of a merger, consolidation, reorganization, or acquisition of
assets. It will not invest in securities issued by any other investment
company or investment trust.
INVESTMENTS IN ANY ONE ISSUER
With respect to securities comprising 75% of its assets, the Fund will
not invest more than 10% of its total assets in the securities of any one
issuer.
Under this limitation, each governmental subdivision, including states
and the District of Columbia, territories, possessions of the United
States, or their political subdivisions, agencies, authorities,
instrumentalities, or similar entities, will be considered a separate
issuer if its assets and revenues are separate from those of the
governmental body creating it and the security is backed only by its own
assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
nongovernmental user are considered to be issued solely by that user. If
in the case of an industrial development bond or government-issued
security, a governmental or other entity guarantees the security, such
guarantee would be considered a separate security issued by the guarantor
as well as the other issuer, subject to limited exclusions allowed by the
Investment Company Act of 1940.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers (or in the alternative, guarantors, where
applicable) which have records of less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees or its investment adviser owning individually more
than 1/2 of 1% of the issuer's securities together own more than 5% of
the issuer's securities.
DEALING IN PUTS AND CALLS
The Fund will not purchase or sell puts, calls, straddles, spreads, or
any combination of them, except that the Fund may purchase municipal
securities accompanied by agreements of sellers to repurchase them at the
Fund's option.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its total assets
in illiquid securities, including repurchase agreements maturing in more
than seven days.
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities, except as permitted by the
investment objective and policies and investment limitations of the Fund.
In order to permit the sale of the Fund's shares in certain states, the Fund may
make commitments more restrictive than the investment limitations described
above. Accordingly, the Fund has undertaken not to invest in: real estate
limited partnerships; and oil, gas, or other mineral leases. Should the Fund
determine that any such commitment is no longer in the best interests of the
Fund and its shareholders, it will revoke the commitment by terminating sales of
its shares in the state involved.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its total assets during the last fiscal year and has no present intent to do
so in the coming fiscal year.
The Fund does not consider the issuance of separate classes of shares to
constitute an issue of 'senior securities' within the meaning of the investment
limitations set forth above.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items".
CONCENTRATION OF INVESTMENTS
With respect to temporary investments, the Fund will not purchase securities
(other than securities issued or guaranteed by the U.S. government, its
agencies, or instrumentalities) if, as a result of such purchase, more than 25%
of the value of the Fund's total assets would be invested in any one industry.
However, the Fund may invest more than 25% of the value of its assets in cash or
cash items, securities issued or guaranteed by the U.S. government, its
agencies, or instrumentalities, or instruments secured by these money market
instruments, such as repurchase agreements.
TRUST MANAGEMENT
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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., and Federated Administrative
Services, Inc., and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
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, tna Life and Casualty Company; Chief Executive Officer and
Director, Trustee, or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company. Mr. Donahue is the father
of J. Christopher Donahue, President of the Trust.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President,
Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate
Department Village Development Corporation; General Partner or Trustee in private
John R. Wood and real estate ventures in Southwest Florida; Director, Trustee, or
Associates Inc., Managing General Partner of the Funds; formerly President, Naples
Realtors Property Management, Inc.
3255 Tamiami Trail North
Naples, FL
William J. Copeland Trustee Director and Member of the Executive Committee; Michael Baker Inc.;
One PNC Plaza- Director, Trustee, or Managing General Partner of the Funds; formerly
23rd Floor Vice Chairman and Director, PNC Bank, N.A. and PNC Bank Corp. and
Pittsburgh, PA Director, Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director,
Concord, MA Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
Edward L. Flaherty, Jr. Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly Counsel,
Horizon Financial, F.A., Western Region.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee or Managing General Partner of the Funds; formerly,
Boston, MA President, State Street Bank & Trust Company and State Street Boston
Corporation; and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
Wesley W. Posvar Trustee Professor Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace; RAND Corporation; Online Computer
Learning Library Center Inc.; and U.S. Space Foundation; Chairman, Czecho Slovak
University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds; President, Emeritus University of Pittsburgh; formerly, Chairman,
National Advisory Council for Enironmental Policy and Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
John A. Staley, IV* Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors and Trustee President, Federated Securities Corp.; President and Trustee, Federated
Tower Advisers, Federated Management, and Federated Research; Vice President
Pittsburgh, PA of the Funds; Director, Trustee, or Managing General Partner of some of
the Funds; formerly, Vice President, The Standard Fire Insurance Com-
pany and President of its Federated Research Division.
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Tower Federated Management, and Federated Research; President and Director,
Pittsburgh, PA Federated Administrative Services, Inc.; President or Vice President of
the Funds; Director, Trustee or Managing General Partner of some of the
Funds; Mr. Donahue is the son of John F. Donahue, Chairman and Trustee
of the Trust.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director, Federated Securities Corp.; President or Vice President of the
Pittsburgh, PA Funds; Director or Trustee of some of the Funds.
Edward C. Gonzales Vice President Vice President, Treasurer and Trustee, Federated Investors; Vice
Federated Investors and Treasurer President and Treasurer, Federated Advisers, Federated Management, and
Tower Federated Research; Executive Vice President, Treasurer, and Director,
Pittsburgh, PA Federated Securities Corp.; Chairman, Treasurer, and Director, Federated
Administrative Services, Inc.; Trustee or Director of some of the Funds;
Vice President and Treasurer of the Funds.
Glen R. Johnson President Trustee, Federated Investors; President and/or Trustee of some of the
Federated Investors Tower Funds; staff member, Federated Securities Corp. and Federated
Pittsburgh, PA Administrative Services, Inc.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Executive Vice President,
Pittsburgh, PA Secretary, and Director, Federated Administrative Services, Inc.;
Director and Executive Vice President, Federated Securities Corp.; Vice
President and Secretary of the Funds.
</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
\ Members of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
THE FUNDS
"The Funds," and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust;
Automated Government Money Trust; The Boulevard Funds; California Municipal Cash
Trust; Cash Trust Series Inc.; Cash Trust Series II; DG Investor Series; Edward
D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income Trust; Federated
Income Securities Trust; Federated Index Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated Municipal Trust; Federated
Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust;
Federated Stock Trust; Federated Tax-Free Trust;
Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income
Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress
Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Insight Institutional Series, Inc.; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
Term Trust, Inc.--1999; Liberty U.S. Government Money Market Trust; Liberty
Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Mark Twain Funds;
Money Market Management Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111
Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select
Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond
Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
Trademark Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Trust's outstanding shares.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
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ADVISER TO THE FUND
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All of the voting securities of Federated Investors are
owned by a trust, the Trustees of which are John F. Donahue, his wife, and his
son J. Christopher Donahue. John F. Donahue, Chairman and Trustee of Federated
Management; Chairman and Trustee of Federated Investors; and Chairman and
Trustee of the Trust. John A. Staley, IV, President and Trustee of Federated
Management; Vice President and Trustee of Federated Investors; Executive Vice
President of Federated Securities Corp.; and Trustee and Vice President of the
Trust. J. Christopher Donahue is Trustee, Federated Management; President and
Trustee of Federated Investors; President and Director of Federated
Administrative Services, Inc.; and Vice President of the Trust. John W.
McGonigle is Vice President, Secretary and Trustee, Federated Management;
Trustee, Vice President, Secretary, and General Counsel, Federated Investors;
Director, Executive Vice President, and Secretary; Federated Administrative
Services, Inc.; Director and Executive Vice President; Federated Securities
Corp.; and Vice President and Secretary of the Trust.
The adviser shall not be liable to the Trust, the Fund or any shareholder of the
Fund for any losses that may be sustained in the purchase, holding, or sale of
any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
October 31, 1993, 1992, and 1991, and prior to the reorganization of the Fund
into the Trust, the Fund's adviser earned $1,065,970, $839,082, and $889,667,
which was reduced by $460,455, $413,760, and $287,685, respectively, because of
undertakings to limit the Fund's expenses.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
These arrangements are not part of the advisory contract and have been
established only to comply with applicable state authorities. They may be
amended or rescinded in the future.
ADMINISTRATIVE ARRANGEMENTS
- --------------------------------------------------------------------------------
For the fiscal years ended October 31, 1993 and 1992, the distributor paid
$286,080 and $254,888 to financial institutions for distribution and
administrative services. The administrative services include, but are not
limited to, providing office space, equipment, telephone facilities, and various
personnel, including clerical, supervisory, and computer, as is necessary or
beneficial to establish and maintain shareholders' accounts and records, process
purchase and redemption transactions, process automatic investments of client
account cash balances, answer routine client inquiries regarding the Fund,
assist clients in changing dividend options, account designations, and
addresses, and providing such other services as the Fund may reasonably request.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund at approximate cost. For the
fiscal years ended October 31, 1993, 1992, and 1991, and prior to the
reorganization of the Fund into the Trust, the Fund incurred costs for
administrative services of $329,428, $280,632, and $228,824, respectively. John
A. Staley, IV, an officer of the Fund, and Dr. Henry J. Gailliot, an officer of
Federated Management, the adviser to the Fund, each hold approximately 15% and
20%, respectively, of the outstanding common stock and serve as Directors of
Commercial Data Services, Inc., a company which provides computer processing
services to Federated Administrative Services. For the fiscal years ended
October 31, 1993, 1992, and 1991, and prior to the reorganization of the Fund
into the Trust, Federated Administrative Services, paid approximately $165,431,
$189,741, and $187,677, respectively, for services provided by Commercial Data
Services, Inc.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the investment adviser will generally use those
who are recognized dealers in specific portfolio instruments, except when a
better price and execution of the order can be obtained elsewhere. The adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Board of Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated Funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve Wire System are open for business.
The procedure for purchasing Shares is explained in the respective prospectus
under "Investing in Cash II Shares" and "Investing in Institutional Service
Shares."
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS
These arrangements permit the payment of fees to Financial Institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Board of Trustees expects that the Fund
will be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in pursuing its investment objectives. By
identifying potential investors whose needs are served by the Fund's objectives,
and properly servicing these accounts, it may be possible to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; and (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal period ending October 31, 1993, prior to the reorganization of
the Fund into the Trust, payments in the amount of $176,146 and $87,295 were
made pursuant to the Distribution Plan on behalf of, Institutional Service
Shares and Cash II Shares, respectively.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. State Street Bank acts as the
shareholder's agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7, as amended (the
"Rule"), under the Investment Company Act of 1940. Under the Rule, the Trustees
must establish procedures reasonably designed to stabilize the net asset value
per share, as computed for purposes of distribution and redemption, at $1.00 per
share, taking into account current market conditions and the Fund's investment
objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule as amended, a
demand feature entitles the Fund to receive the principal amount of the
instrument from the issuer or a third party (1) on no more than 30 days' notice
or (2) at specified intervals not exceeding one year on no more than 30 days'
notice. A standby commitment entitles the Fund to achieve same day settlement
and to receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
The Fund acquires instruments subject to demand features and standby commitments
to enhance the instruments' liquidity. The Fund treats demand features and
standby commitments as part of the underlying instruments, because the Fund does
not acquire them for speculative purposes and cannot transfer them separately
from the underlying instruments. Therefore, although the Rule defines demand
features and standby commitments as "puts", the Fund does not consider them to
be separate investments for purposes of its investment policies.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
.5 of 1% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risk and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than one year can be
purchased by the Fund. For the treatment of variable rate municipal
securities with demand payment features, refer to "Variable Rate Demand
Notes" in the prospectus.
Should the disposition of a portfolio security result in a dollar
weighted average portfolio maturity of more than 90 days, the Fund will
invest its available cash to reduce the average maturity to 90 days or
less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to
take advantage of short-term market variations. This policy may, from
time to time, result in high portfolio turnover. Under the amortized cost
method of valuation, neither the amount of daily income nor the net asset
value is affected by any unrealized appreciation or depreciation of the
portfolio.
In periods of declining interest rates, the indicated daily yield on shares of
the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING SHARES
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The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
respective prospectus under "Redeeming Cash II Shares" and "Redeeming
Institutional Service Shares." Although the transfer agent does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem Shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the respective
class's net asset value during any 90-day period.
TAX STATUS
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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 calculates its yield daily for all classes of shares, based upon the
seven days ending on the day of calculation, called the "base period." This
yield is computed by:
determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net change
excluding capital changes but including the value of any additional shares
purchased with dividends earned from the original one share and all dividends
declared on the original and any purchased shares;
dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, the performance will be reduced for those shareholders paying
those fees.
The Fund's yield for the Cash II Shares seven-day period ended October 31, 1993,
which was prior to the reorganization of the Fund into the Trust, was 1.89%. The
yield for the Institutional Service Shares was 2.06% for the same period.
EFFECTIVE YIELD
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The Fund's effective yield for all classes of shares is computed by compounding
the unannualized base period return by:
adding 1 to the base period return;
raising the sum to the 365/7th power; and
subtracting 1 from the result.
The Fund's effective yield for Cash II Shares the seven-day period ended October
31, 1993, which was prior to the reorganization of the Fund into the Trust, was
1.91%. The effective yield for the Institutional Service Shares was 2.08% for
the same period.
TAX-EQUIVALENT YIELD
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The tax-equivalent yield for all classes of shares of the Fund is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that either
class of shares would have had to earn to equal its actual yield, assuming a 28%
or 31% federal tax rate and the regular personal income tax rate imposed by New
York, and assuming that income earned by the Fund is 100% tax-exempt on a
regular federal, state, and local basis.
The Fund's tax-equivalent yield for the Cash II Shares for the seven-day period
ended October 31, 1993, which was prior to the reorganization of the Fund into
the Trust, was 3.09%. The tax-equivalent yield for the Institutional Service
Shares was 3.37% for the same period. In each case, a combined federal and state
marginal tax rate of 38.9% was assumed.
TAX EQUIVALENCY TABLE
Each class of shares may also use a tax equivalency table in advertising and
sales literature for all classes of shares. The interest earned by the municipal
bonds in the Fund's portfolio generally remains free from federal regular income
tax, and from the regular personal income tax imposed by New York.* As the table
below indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads betwen "tax-free" and taxable yields.
<TABLE>
<S> <C> <C> <C> <C> <C>
TAXABLE YIELD EQUIVALENT FOR 1994
STATE OF NEW YORK
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COMBINED FEDERAL AND STATE
22.594% 35.594% 38.594% 43.594% 47.194%
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JOINT RETURN: $1- $38,001- $91,851- $140,001- OVER
38,800 91,850 140,000 250,000 $ 250,000
SINGLE RETURN: $1- $22,751- $55,101- $115,001- OVER
22,750 55,100 115,000 250,000 $ 250,000
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TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
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1.50% 1.94% 2.33% 2.44% 2.66% 2.84%
2.00 2.58 3.11 3.26 3.55 3.79
2.50 3.23 3.88 4.07 4.43 4.73
3.00 3.88 4.66 4.89 5.32 5.68
3.50 4.52 5.43 5.70 6.20 6.63
4.00 5.17 6.21 6.51 7.09 7.57
4.50 5.81 6.99 7.33 7.98 8.52
5.00 6.46 7.76 8.14 8.86 9.47
5.50 7.11 8.54 8.96 9.75 10.42
6.00 7.75 9.32 9.77 10.64 11.36
</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 chart above is for illustrative purposes only and only uses tax brackets
that went into effect beginning January 1, 1993. It is not an indicator of past
or future performance of either class of shares.
*Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of all classes of shares depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates on money market instruments;
changes in Fund expenses or either class of share's expenses; and
the relative amount of Fund cash flow.
From time to time the Fund may advertise its performance using certain financial
publications and/or compare its performance to certain indices. These may
include the following:
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "money market
instruments fund" category in advertising and sales literature.
Advertisements and other sales literature for all classes of shares may refer to
total return. Total return is the historic change in the value of an investment
in any of the classes based on the monthly reinvestment of dividends over a
specified period of time.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD AND POOR'S CORPORATION SHORT-TERM MUNICIPAL OBLIGATION RATING
DEFINITIONS
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATING
DEFINITIONS
MIG1/VMIG1--Notes which are rated MIG1/VMIG are of the best quality. There is
present strong protection by established cash flows, superior liquidity support,
or demonstrated broad-based access to the market for refinancing.
MIG2/VMIG2--Notes which are rated MIG2/VMIG2 are of high quality. Margins of
protection are ample although not so large as in MIG1/VMIG1 ratings.
FITCH INVESTORS SERVICE, INC. TAX-EXEMPT INVESTMENT NOTE RATING DEFINITIONS
FIN-1--Notes regarded as having the strongest degree of assurance for timely
payment.
FIN-2--Notes reflecting a degree of assurance for timely payment only slightly
less in degree than the highest category.
STANDARD & POOR'S CORPORATION COMMERCIAL PAPER RATING DEFINITIONS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
"A-1".
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
P-1--Issuers (or supporting institutions) rated Prime-1 (P-1) have a superior
ability for repayment of senior short-term debt obligations. P-1 repayment
ability will often be evidenced by many of the following characteristics:
Leading market positions in well-established industries.
High rates of return on funds employed.
Conservative capitalization structure with moderate reliance on debt and ample
asset protection.
Broad margins in earnings coverage of fixed financial charges and high internal
cash generation.
Well-established access to a range of financial markets and assured sources of
alternate liquidity.
P-2--Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong
ability for repayment of senior short-term obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC. SHORT-TERM RATING DEFINITIONS
F -1+--(Exceptionally Strong Credit Quality). Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F -1--(Very Strong Credit Quality). Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F -2--(Good Credit Quality). Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as the "F-1+" and "F-1" categories.
G00319-03-B (6/94)
