ALABAMA
MUNICIPAL
CASH
TRUST
SEMI-ANNUAL REPORT AND
SUPPLEMENT TO PROSPECTUS
DATED DECEMBER 1, 1993
May 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
4041805A (5/94)
ALABAMA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT AND SUPPLEMENT TO PROSPECTUS DATED DECEMBER 1, 1993
A. Please delete the "Summary of Fund Expenses" table on page 1 of the
prospectus and replace it with the following table:
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
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 FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
<S> <C> <C>
Management Fee (after waiver) (1)......................................................................... 0.00%
12b-1 Fee................................................................................................. None
Total Other Expenses...................................................................................... 0.59%
Shareholder Services Fee................................................................... 0.25%
Total Fund Operating Expenses (2)................................................................ 0.59%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of the management fee. The adviser can terminate this
voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.50%.
(2) The Total Fund Operating Expenses are estimated to be 1.22% absent the
anticipated voluntary waiver of the management fee, and the anticipated
voluntary reimbursement of certain other operating expenses.
* Total Fund Operating Expenses are estimated based on average expenses
expected to be incurred during the period ending October 31, 1994. During the
course of this period, expenses may be more or less than the average amount
shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "INVESTING IN THE FUND" 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
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period................................................. $6 $19
</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. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING OCTOBER 31,
1994.
B. Please insert the following "Financial Highlights" table as page 2 of the
prospectus following the "Summary of Fund Expenses" and before the section
entitled "General Information." In addition, please add the heading
"Financial Highlights" to the Table of Contents page after the heading
"Summary of Fund Expenses."
ALABAMA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1994*
<S> <C>
- ---------------------------------------------------------------------------------------------- -------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- ----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------
Net investment income 0.01
- ---------------------------------------------------------------------------------------------- -------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.01)
- ---------------------------------------------------------------------------------------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 1.00
- ---------------------------------------------------------------------------------------------- -------------------
TOTAL RETURN** 0.94%
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------
Expenses 0.33%(b)
- ----------------------------------------------------------------------------------------------
Net investment income 2.27%(b)
- ----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.50%(b)
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $27,214
- ----------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 2, 1993 (date of initial
public investment) to April 30, 1994 (unaudited).
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
C. Please insert the following information as a subsection entitled "Other
Payments to Financial Institutions" on page 8 of the prospectus after the
subsection entitled "Adviser's Background", and add the heading "Other
Payments to Financial Institutions" to the Table of Contents:
"OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Shareholder Services Plan, 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."
D. Please delete the section entitled "Administrative Arrangements" on page 8
of the prospectus and its corresponding heading from the Table of Contents
page and insert the subsection "Administrative Services" as follows:
"ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</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."
E. Please insert the following information as a subsection entitled
"Shareholder Services Plan" on page 8 of the prospectus under the section
entitled "Administrative Services," and add the heading "Shareholder
Services Plan" to the Table of Contents:
"SHAREHOLDER SERVICES PLAN. 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 personal 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."
F. Please insert the following information as a subsection entitled
"Checkwriting" after the subsection entitled "Receiving Payment" on page
12 of the prospectus, and add the heading "Checkwriting" to the Table of
Contents:
"CHECKWRITING. At the shareholder's request, State Street Bank will establish a
checking account for redeeming shares. For further information, contact
Federated Securities Corp.
A fee may be charged for this service. With a Fund checking account, shares may
be redeemed simply by writing a check. The redemption will be made at the net
asset value on the date that State Street Bank presents the check to the Fund. A
check may not be written to close an account. If a shareholder wishes to redeem
shares and have the proceeds available, a check may be written and negotiated
through the shareholder's bank. Checks should never be sent to State Street Bank
to redeem shares. Cancelled checks are returned to the shareholder each month."
G. Please delete the section entitled "Redemption Before Purchase Instruments
Clear" on page 12 of the prospectus. In addition, please delete the
heading from the Table of Contents:
H. Please insert the following at the end of the second paragraph under the
heading "Voting Rights" on page 13 of the prospectus:
"As of May 10, 1994, UBAT & Co, Union Bank and Trust Co, Montgomery, Alabama,
owned approximately 7,322,268 shares (29.3%) of the Fund, and therefore, may for
certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders."
I. Please insert the following financial statements beginning as page 16 of
the prospectus. In addition, please add the heading "Financial Statements"
to the Table of Contents page immediately before "Addresses."
ALABAMA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL S&P OR
AMOUNT FITCH* VALUE
<C> <S> <C> <C>
- ------------- --------------------------------------------------------------------- ----------- --------------
SHORT-TERM MUNICIPAL SECURITIES--98.4%
- ------------------------------------------------------------------------------------
ALABAMA--91.4%
---------------------------------------------------------------------
$ 1,600,000 Alabama Higher Education Loan Corp., Weekly VRDNs
(Series 1987A)/(Fuji Bank Ltd. LOC)/(Subject to AMT) VMIG1 $ 1,600,000
---------------------------------------------------------------------
1,400,000 Anniston, AL, IDB Weekly VRDNs (Hoover Group)/ (Comerica Bank
LOC)/(Subject to AMT) P-1 1,400,000
---------------------------------------------------------------------
1,100,000 Arab, AL, IDB Revenue Refunding Bonds Weekly VRDNs (Series 1989)/(SCI
Manufacturing, Inc.)/(Bank of Tokyo Ltd. LOC) A-1 1,100,000
---------------------------------------------------------------------
1,000,000 Birmingham, AL, IDA Weekly VRDNs (Altel Industries)/ Wachovia Bank of
Georgia, N.A. LOC)/(Subject to AMT) P-1 1,000,000
---------------------------------------------------------------------
1,100,000 Chatom, AL, 2.70% Semi-Annual TOBs (National Rural Utilities Series
1984M)/(Alabama Electric Co-Op, Inc.)/ (CFC Guaranty), Optional
Tender 8/15/94 A-1+ 1,100,000
---------------------------------------------------------------------
1,200,000 Decatur, AL, IDB Weekly VRDNs Revenue Refunding Bonds (Series
1993)/(Allied Signal, Inc. Guaranty) A-1 1,200,000
---------------------------------------------------------------------
1,100,000 Eutaw, AL, IDB Weekly VRDNs (Mississippi Power
Company Guaranty) VMIG1 1,100,000
---------------------------------------------------------------------
670,000 Homewood, AL, 3.40% GO Refunding Warrants SB,
5/1/95 AA 670,000
---------------------------------------------------------------------
400,000 Homewood, AL, IDA Weekly VRDNs (Mountain Brook Ltd.)/(SouthTrust Bank
of Alabama LOC) P-1 400,000
---------------------------------------------------------------------
770,000 Huntsville, AL, IDA Weekly VRDNs (Parkway)/(First
Alabama Bank LOC) P-1 770,000
---------------------------------------------------------------------
$ 1,000,000 Jefferson County, AL, Weekly VRDNs (Special Obligation
Warrants)/(Series 1992)/(Board of Education)/(Columbus Bank & Trust
Co. LOC) A-1 $ 1,000,000
---------------------------------------------------------------------
2,010,000 Madison, AL, IDA Weekly VRDNs (Series A)/(Executive Inn
Ltd.)/(AmSouth Bank N.A. LOC) A-1 2,010,000
---------------------------------------------------------------------
550,000 Marshall County, AL, Gas District Revenue Bonds, 2.65% BANs (Series
1994)/(MBIA Insured), 8/1/94 AAA 550,000
---------------------------------------------------------------------
1,000,000 Mobile, AL, Downtown Redevelopment Authority, 2.70% Annual TOBs
(Series 1992)/(Mitchell Project)/(Trust Company Bank LOC)/(Subject to
AMT), Mandatory Tender
12/1/94 P-1 1,000,000
---------------------------------------------------------------------
1,500,000 Mobile, AL, IDA Weekly VRDNs (McRae's, Inc.)/
(NationsBank, North Carolina N.A. LOC) A-1 1,500,000
---------------------------------------------------------------------
1,500,000 Mobile, AL, IDB, Pollution Control Revenue Bonds, 3.05% Semi-Annual
TOBs (Series 1984A)/(International Paper), Optional Tender, 10/15/94 A-2 1,500,000
---------------------------------------------------------------------
1,000,000 Montgomery, AL, IDB, Pollution Control & Solid Waste Disposal
Revenue, 2.45% CP (General Electric Company Guaranty), Mandatory
Tender 6/17/94 A-1+ 1,000,000
---------------------------------------------------------------------
1,000,000 Pheonix City, AL, IDB, 2.50% CP (Series 1988)/(Mead Coated
Board)/(ABN AMRO Bank N.V. LOC)/(Subject to AMT), Mandatory Tender
5/23/94 P-1 1,000,000
---------------------------------------------------------------------
1,000,000 Pheonix City, AL, IDB, 2.50% CP (Series 1988)/(Mead Coated
Board)/(ABN AMRO Bank N.V. LOC)/(Subject to AMT), Mandatory Tender
5/26/94 P-1 1,000,000
---------------------------------------------------------------------
1,000,000 Pheonix City, AL, IDB, 2.80% CP (Series 1988)/(Mead Coated
Board)/(ABN AMRO Bank N.V. LOC)/(Subject to AMT), Mandatory Tender
6/14/94 P-1 1,000,000
---------------------------------------------------------------------
$ 965,000 Piedmont, AL, IDB Weekly VRDNs (Industrial Partners)/ (Wachovia Bank
of Georgia LOC)/(Subject to AMT) P-1 $ 965,000
---------------------------------------------------------------------
1,100,000 St. Clair County, AL, IDB Weekly VRDNs (Series 1993)/ (EBSCO
Industries, Inc.)/(National Australia Bank Ltd. LOC)/(Subject to AMT) A-1+ 1,100,000
---------------------------------------------------------------------
900,000 Sylacauga, AL, IDB Industrial Development Revenue Bonds Daily VRDNs
(Series 1991)/(Parker Fertilizer)/(SouthTrust Bank of Alabama
LOC)/(Subject to AMT) P-1 900,000
--------------------------------------------------------------------- --------------
Total 24,865,000
--------------------------------------------------------------------- --------------
PUERTO RICO--7.0%
---------------------------------------------------------------------
1,000,000 Commonwealth of Puerto Rico, 3.00% TRANs (Series 1994A), 7/29/94 SP-1+ 1,000,900
---------------------------------------------------------------------
900,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit
Suisse and Sumitomo Bank Ltd. LOCs) A-1 900,000
--------------------------------------------------------------------- --------------
Total 1,900,900
--------------------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST (NOTE 2A) $ 26,765,900\
--------------------------------------------------------------------- --------------
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings.
\ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($27,214,176) at April 30, 1994.
BILTMORE TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
AMT--Alternative Minimum Tax
BANs--Bond Anticipation Notes
CFC--Cooperative Finance Corporation
CP--Commercial Paper
GO--General Obligation
IDA--Industrial Development Authority
IDB--Industrial Development Bond
LOC--Letter of Credit
LOCs--Letters of Credit
MBIA--Municipal Bond Investors Assurance
SB--Serial Bond
TOBs--Tender Option Bonds
TRANs--Tax and Revenue Anticipation Notes
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
ALABAMA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments in securities, at amortized cost and value (Note 2A) $ 26,765,900
- -------------------------------------------------------------------------------------------------
Cash 366,288
- -------------------------------------------------------------------------------------------------
Interest receivable 135,935
- -------------------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 29,344
- ------------------------------------------------------------------------------------------------- --------------
Total assets 27,297,467
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Dividends payable $25,377
- --------------------------------------------------------------------------------------
Payable to shareholder servicing agent (Note 4) 2,999
- --------------------------------------------------------------------------------------
Payable to transfer and dividend disbursing agent (Note 4) 1,040
- --------------------------------------------------------------------------------------
Accrued expenses and other liabilities 53,875
- -------------------------------------------------------------------------------------- ---------
Total liabilities 83,291
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 27,214,176 shares of beneficial interest outstanding $ 27,214,176
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share
($27,214,176 / 27,214,176 shares of beneficial interest outstanding) $1.00
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ALABAMA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1994*
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 340,386
- -----------------------------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 65,163
- ----------------------------------------------------------------------------------------
Custodian and recordkeeper fees 24,417
- ----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 1,439
- ----------------------------------------------------------------------------------------
Fund share registration fees 2,850
- ----------------------------------------------------------------------------------------
Shareholder services fees (Note 4) 3,063
- ----------------------------------------------------------------------------------------
Legal fees 2,238
- ----------------------------------------------------------------------------------------
Printing and postage 5,454
- ----------------------------------------------------------------------------------------
Insurance premiums 2,954
- ----------------------------------------------------------------------------------------
Taxes 91
- ----------------------------------------------------------------------------------------
Miscellaneous 826
- ---------------------------------------------------------------------------------------- -----------
Total expenses 108,495
- ----------------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 4) 65,163
- ---------------------------------------------------------------------------------------- -----------
Net expenses 43,332
- ----------------------------------------------------------------------------------------------------- -----------
Net investment income $ 297,054
- ----------------------------------------------------------------------------------------------------- -----------
* For the period from December 2, 1993 (date of initial public investment) to April 30, 1994.
(See Notes which are an integral part of the Financial Statements)
</TABLE>
ALABAMA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1994*
(UNAUDITED)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------------------
Net investment income $ 297,054
- ---------------------------------------------------------------------------------------------- ------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2B)--
- ----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (297,054)
- ---------------------------------------------------------------------------------------------- ------------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- ----------------------------------------------------------------------------------------------
Proceeds from sale of shares 166,429,362
- ----------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 171,972
- ----------------------------------------------------------------------------------------------
Cost of shares redeemed (139,387,158)
- ---------------------------------------------------------------------------------------------- ------------------
Change in net assets from Fund share transactions 27,214,176
- ---------------------------------------------------------------------------------------------- ------------------
Change in net assets 27,214,176
- ----------------------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------------------
Beginning of period --
- ---------------------------------------------------------------------------------------------- ------------------
End of period $ 27,214,176
- ---------------------------------------------------------------------------------------------- ------------------
</TABLE>
* For the period from December 2, 1993 (date of initial public investment) to
April 30, 1994.
(See Notes which are an integral part of the Financial Statements)
ALABAMA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company.
The Trust consists of twelve, non-diversified portfolios. The financial
statements included herein are only those of Alabama Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles (GAAP).
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the
Investment Company Act of 1940.
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state, than would be a comparable general
tax-exempt mutual fund. In order to reduce the credit risk associated with
such factors, at April 30, 1994, 88% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The
aggregate percentages by financial institutions and agencies ranged from
2.1% to 11.2% of total investments.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount are amortized as required by
the Internal Revenue Code ("Code"). Distributions to shareholders are
recorded on the ex-dividend date.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At April
30, 1994, capital paid-in aggregated $27,214,176. Transactions in Fund shares
were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1994*
<S> <C>
Shares sold 166,429,362
- ----------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 171,972
- ----------------------------------------------------------------------------------------------
Shares redeemed (139,387,158)
- ---------------------------------------------------------------------------------------------- ------------------
Net change resulting from Fund share transactions 27,214,176
- ---------------------------------------------------------------------------------------------- ------------------
</TABLE>
*For the period from December 2, 1993 (date of initial public investment) to
April 30, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
("Adviser"), receives for its services an annual investment advisory fee equal
to .50 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive its fee and reimburse certain operating expenses of the Fund.
The Adviser can modify or terminate this voluntary waiver and reimbursement at
any time at its sole discretion.
ADMINISTRATION FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these Services
were provided at approximate cost. Effective March 1, 1994, the fee is based on
the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received during any fiscal year shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a shareholder services agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of average net assets of the Fund for the period. This fee is to obtain
certain personal services for shareholders and the maintenance of shareholder
accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer agent and dividend disbursing agent for the Fund.
The fee is based on the size, type and number of accounts and transactions made
by shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses and start-up administrative
service expenses incurred by the Fund will be borne initially by Adviser and are
estimated at $26,461 and $31,250, respectively. The Fund has agreed to reimburse
the Adviser for the organizational expenses and start-up administrative expenses
during the five year period following December 1, 1993 (date the Fund first
became effective).
INTERFUND TRANSACTIONS--During the period ended April 31, 1994, the Fund engaged
in purchase and sale transactions with other Funds advised by the Adviser
pursuant to Rule 17a-7 of the Investment Company Act of 1940 amounting to
$88,445,000 and $84,375,000, respectively. These purchases and sales were
conducted on an arms length basis and transacted for cash consideration only, at
independent current market prices and without brokerage commissions, fees or
other remuneration.
Certain of the Officers and Trustees of the Trust are Officers and Trustees of
the above companies.
May 31, 1994
ALABAMA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
PROSPECTUS
The shares of Alabama Municipal Cash Trust (the "Fund") offered by this
prospectus represent interests in a non-diversified portfolio of securities
which is one of a series of investment portfolios in Federated Municipal Trust
(the "Trust"), an open-end management investment company (a mutual fund). The
investment objective of the Fund is to provide current income exempt from
federal regular income tax and the income taxes imposed by the the State of
Alabama consistent with stability of principal. The Fund invests primarily in
short-term Alabama municipal securities, including securities of states,
territories, and possessions of the United States which are not issued by or on
behalf of Alabama or its political subdivisions and financing authorities, but
which provide income exempt from the federal regular and Alabama state income
taxes. Shares of the Fund are sold at net asset value, without a sales load.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THE 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 Statement of Additional Information dated December 1,
1993, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge by calling 1-800-235-4669. To obtain other information, or make
inquiries about the Fund, contact the Fund at the address listed in the back of
this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 1, 1993
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 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 Illquid Securities 4
When-Issued and Delayed
Delivery Transactions 5
Temporary Investments 5
Alabama Municipal Securities 5
Standby Commitments 5
Alabama Investment Risks 6
Non-Diversification 6
Investment Limitations 6
Regulatory Compliance 7
FEDERATED MUNICIPAL TRUST INFORMATION 7
- ------------------------------------------------------
Management of Federated Municipal Trust 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 8
Distribution of Fund Shares 8
Administrative Arrangements 8
Administration of the Fund 9
Administrative Services 9
Custodian 9
Transfer Agent, and
Dividend Disbursing Agent 9
Legal Counsel 9
Independent Public Accountants 9
Expenses of the Fund 9
NET ASSET VALUE 9
- ------------------------------------------------------
INVESTING IN THE FUND 10
- ------------------------------------------------------
Share Purchases 10
By Wire 10
By Mail 10
Minimum Investment Required 10
What Shares Cost 10
Subaccounting Services 11
Certificates and Confirmations 11
Dividends 11
Capital Gains 11
REDEEMING SHARES 11
- ------------------------------------------------------
Telephone Redemption 11
Written Requests 12
Signatures 12
Receiving Payment 12
Redemption Before Purchase
Instruments Clear 12
Accounts with Low Balances 13
SHAREHOLDER INFORMATION 13
- ------------------------------------------------------
Voting Rights 13
Massachusetts Partnership Law 13
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
Alabama Taxes 14
Other State and Local Taxes 15
PERFORMANCE INFORMATION 15
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................................................................. None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................................................. None
Deferred Sales Loads (as a percentage of original
purchase price or redemption proceeds, as applicable)................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee........................................................................................... None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
<S> <C>
Management Fee (after waiver) (1)...................................................................... 0.31%
12b-1 Fee.............................................................................................. None
Other Expenses......................................................................................... 0.28%
Total Fund Operating Expenses (2)............................................................ 0.59%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.50%.
(2) The Total Fund Operating Expenses are estimated to be 0.78% absent the
anticipated voluntary waiver of a portion of the management fee.
* Total Operating Expenses are estimated based on average expenses expected to
be incurred during the period ending October 31, 1994. During the course of
this period, expenses may be more or less than the average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "INVESTING IN THE FUND" 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
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time period.
As noted in the table above, the Fund charges no redemption fees............................. $6 $19
</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. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING OCTOBER 31,
1994.
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.
Shares of the Fund are designed for investment of moneys held by financial
institutions in an agency or fiduciary capacity. A minimum initial investment of
$10,000 over a 90-day period is required. The Fund may not be a suitable
investment for non-Alabama taxpayers or retirement plans since it invests
primarily in Alabama municipal securities.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal regular income tax and the income tax imposed by the State of Alabama
consistent with stability of principal. The investment objective cannot be
changed without approval of shareholders. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by following
the investment policies described in this prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than Alabama.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of Alabama
municipal securities (as defined below) with remaining maturities of 13 months
or less at the time of purchase by the Fund. As a matter of investment policy,
which cannot be changed without approval of shareholders, the Fund invests so
that at least 80% of its annual interest income is exempt from federal regular
and Alabama state income tax or so that at least 80% of its net assets is
invested in obligations, the interest income from which is exempt from federal
regular and Alabama state income tax. 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 ("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 Alabama and its political subdivisions and
financing authorities, and obligations of other states, territories and
possessions of the United States, including the District of Columbia, and any
political subdivision or financing authority of any of these, the income from
which is, in the opinion of qualified legal counsel, exempt from both federal
regular income tax and the income tax imposed by the State of Alabama. Examples
of Alabama municipal securities include, but are not limited to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
municipal securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
municipal interest index or a stated percentage of a prime rate or another
published rate. 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. Also included within the general category of municipal
securities are certain lease obligations or installment purchase contract
obligations and participations therein (hereinafter collectively called
"lease obligations") of municipal authorities or entities. Although lease
obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to budget for, appropriate
and make the payments due under the lease obligation. Interest on lease
obligations is tax-exempt to the same extent as if the municipality had
issued debt obligations to finance the underlying project or purchase.
However, certain lease obligations contain "non-appropriation" clauses
which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriate
for such purpose on a yearly basis. In addition to the "non-appropriation"
risk, these securities represent a relatively new type of financing that
has not yet developed the depth of marketability associated with more
conventional bonds and some lease obligations may be illiquid. Although
"non-appropriation" lease obligations are generally secured by the leased
property, disposition of the property in the event of foreclosure might
prove difficult. In addition, the tax treatment of such obligations in the
event of "non-appropriation" is unclear. The Fund does not invest more than
10% of its total assets in lease obligations that contain
"non-appropriation" clauses.
If the Fund purchases unrated municipal leases, the Trustees will be
responsible for determining, on an ongoing basis, the credit quality of
such leases and the likelihood that such lease will not be cancelled.
RATINGS. The Alabama 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. A description of the
ratings categories is contained in the appendix to the Statement of Additional
Information. See "Regulatory Compliance."
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit enhanced by a guaranty, letter of credit, or insurance. The Fund
typically evaluates the credit quality and ratings of credit enhanced securities
based upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Trustees, certain restricted securities are considered
liquid. To the extent restricted securities are deemed to be illiquid, the Fund
will limit their purchase, together with other securities considered to be
illiquid, including some municipal leases, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Alabama
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, when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term non-Alabama municipal
tax-exempt obligations or other taxable temporary investments. All temporary
investments will satisfy the same credit quality standards as the Fund's
acceptable investments. See "Ratings" above. Temporary investments include:
notes issued by or on behalf of municipal or corporate issuers; marketable
obligations issued or guaranteed by the U.S. government, its agencies, or
instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; and repurchase agreements (arrangements in which the
organization sells the Fund a temporary investment and agrees at the time of
sale to repurchase it at a mutually agreed upon time and price).
Although the Fund is permitted to make taxable temporary investments, there is
no current intention of generating income subject to federal regular income tax
or personal income tax imposed by the State of Alabama.
ALABAMA MUNICIPAL SECURITIES
Alabama municipal securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Alabama municipal securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of 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 securities prior to maturity,
at the Fund's option, for the amortized cost of the 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.
ALABAMA INVESTMENT RISKS
Yields on Alabama municipal securities depend on a number of factors. These
factors include the general economic conditions of the short-term municipal
market and of the municipal bond market, the size and maturity of the specific
offering, and the rating or lack of a rating on the issue. In addition, adverse
economic conditions or developments affecting the State of Alabama and/or its
municipalities could have a negative impact on the Fund's portfolio. The ability
of the Fund to achieve its investment objective also depends on the continuing
ability of the issuers of Alabama municipal securities and demand features for
such securities, or the credit enhancers of either, to meet their obligations
for the payment of principal and interest when due. However, Alabama's
conservative approach to financial management as well as its moderate debt
levels and strong balanced budget act provides high degree of protection to
bondholders.
Investing in Alabama municipal securities that meet the Fund's quality standards
may not be possible if the state of Alabama or its municipalities do not
maintain their high quality short-term credit ratings. Additionally, certain
Alabama constitutional amendments, legislative measures, administrative
regulations, executive or judicial orders, and voter initiatives could adversely
affect Alabama municipal securities. The Statement of Additional Information
contains an expanded discussion of the current economic risks associated with
the purchase of Alabama municipal securities.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified portfolio because the higher percentage of investments among fewer
issuers may result in greater fluctuation in the total market value of the
Fund's portfolio. Any economic, political, or regulatory developments affecting
the value of the securities in the Fund's portfolio will have a greater impact
on the total value of the portfolio than would be the case if the portfolio were
diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, with
regard to at least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following investment limitation, however, can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective.
The Fund will not invest more than 5% of its total assets in industrial
development bonds or other municipal securities when the payment of principal
and interest is the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations, including the
operation of any predecessor.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. In particular, the Fund
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF FEDERATED MUNICIPAL TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of
Trustees is responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .50 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for the voluntary waiver of the advisory
fee by the adviser, the adviser may voluntarily waive some or all of the
advisory fee. This does not include reimbursement to the Fund of any
expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The adviser can terminate this voluntary waiver
of expenses at any time at its sole discretion. The adviser has also
undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also
provide administrative services to a number of investment companies. Total
assets under management or administration by these and other subsidiaries
of Federated Investors is approximately $70 billion. Federated Investors,
which was founded in 1956 as Federated Investors, Inc., develops and
manages mutual funds primarily for the financial industry. Federated
Investors' track record of competitive performance and its disciplined,
risk averse investment philosophy serve approximately 3,500 client
institutions nationwide. Through these same client institutions, individual
shareholders also have access to this same level of investment expertise.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969 and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
ADMINISTRATIVE ARRANGEMENTS
The distributor may select brokers and dealers to provide distribution and
administrative services. The distributor may also select administrators
(including depository institutions such as commercial banks and savings and loan
associations) to provide administrative services. These administrative services
include, but are not limited to, distributing prospectuses and other
information, providing accounting assistance and communicating or facilitating
purchases and redemptions of Fund shares.
Brokers, dealers, and administrators will receive fees from the distributor
based upon shares owned by their clients or customers. The fees are calculated
as a percentage of the average aggregate net asset value of shares held by their
clients in the Fund. Any fees paid for these services by the distributor will be
reimbursed by the adviser.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings and loan association) to become an underwriter or
distributor of securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Board of Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary
of Federated Investors, provides the Fund with the administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services, Inc. provides these at approximate cost.
CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Fund.
TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, transfer agent for the shares of the Fund, and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of Trust expenses.
The expenses of the Fund include, but are not limited to, the cost of:
organizing the Trust and continuing its existence; Trustees' fees; investment
advisory and administrative services; printing prospectuses and other Fund
documents for shareholders; registering the Trust, the Fund, and shares of the
Fund; taxes and commissions; issuing, purchasing, repurchasing, and redeeming
shares; fees for custodians, transfer agents, dividend disbursing agents,
shareholder servicing agents, and registrars; printing, mailing, auditing and
certain accounting and legal expenses; reports to shareholders and governmental
agencies; meetings of Trustees and shareholders and proxy solicitations
therefor; insurance premiums; association membership dues; and such
non-recurring and extraordinary items as may arise. However, the Adviser may
voluntarily reimburse the Fund the amount, up to the amount of the advisory fee,
by which operating expenses exceed limitations imposed by certain states.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting total liabilities from total assets 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 THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve Wire System are open for business. Shares may be purchased either by
wire or by mail. The Fund reserves the right to reject any purchase request.
To purchase shares of the Fund, open an account by calling Federated Securities
Corp. Information needed to establish the account will be taken over the
telephone.
Texas residents must purchase shares through Federated Securities Corp. at
1-800-245-2423.
BY WIRE. To purchase shares of the Fund by Federal Reserve wire, call the Fund
before 1:00 p.m. (Eastern time) to place an order. The order is considered
received immediately. Payment by federal funds must be received before 3:00 p.m.
(Eastern time) that same day. Federal funds should be wired as follows: State
Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For
Credit to: Alabama Municipal Cash Trust; Fund Number (this number can be found
on the account statement or by contacting the Fund); Group Number or Order
Number; Nominee or Institution Name; 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 of the Fund by mail, send a check made payable to
Alabama Municipal Cash Trust to the Fund's transfer agent, Federated Services
Company, c/o State Street Bank and Trust
Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are
considered received when payment by check is converted by State Street Bank into
federal funds. This is normally the next business day after State Street Bank
receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $10,000. However, an account may
be opened with a smaller amount as long as the $10,000 minimum is reached within
90 days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund.
Individual accounts established through a bank or broker may be subject to a
different minimum investment requirement.
WHAT SHARES COST
Fund shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
shares of the Fund through a non-affiliated bank or broker may be charged an
additional service fee by that bank or broker.
The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no shares are tendered for redemption and no orders to
purchase shares are received; or (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Financial
institutions holding Fund 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 Fund shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the financial institution with regard to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the day after the check is converted upon
instruction of the transfer agent into federal funds. Dividends are
automatically reinvested on payment dates in additional shares of the Fund
unless cash payments are requested on an application or by contacting the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses,
if any, could result in a decrease in dividends. If, for some extraordinary
reason, the Fund realizes net long-term or short-term capital gains, it will
distribute them at least once every 12 months.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their shares by telephoning the Fund. Redemption
requests received before 12:00 noon (Eastern time) are not entitled to that
day's dividend. A daily dividend will be paid on shares redeemed if the
redemption request is received after 12:00 noon (Eastern time). However, the
proceeds are not wired until the following business day. If, at any time, the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders will be promptly notified.
An authorization form permitting the Fund to accept redemption requests by
telephone must first be completed. Authorization forms and information on this
service are available from Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, shareholders may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as Written Requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name, his account number,
and the share or dollar amount requested. If share certificates have been
issued, they must be properly endorsed and should be sent by registered or
certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record
with the Fund, or a redemption payable other than to the shareholder of
record must have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by
the Bank Insurance Fund ("BIF"), which is administered by the
Federal Deposit Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
a savings bank or savings and loan association whose deposits are
insured by the Savings Association Insurance Fund ("SAIF"), which
is administered by the FDIC; or
any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a
proper written redemption request provided that the transfer agent has
received payment for the shares from the shareholder.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check, the proceeds from the redemption of those
shares are not available until the Fund or its agents are reasonably certain
that the purchase check has cleared, which could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $10,000 due to
shareholder redemptions.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of all series of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for such
acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument that the Trust or its
Trustees enter into or sign.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, 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, up to 28% of alternative minimum taxable income for
individuals and 20% for corporations, applies when it exceeds the regular tax
for the taxable year. Alternative minimum taxable income is equal to the regular
taxable income of the taxpayer increased by certain "tax preference" items not
included in regular taxable income and reduced by only a portion of the
deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's preadjustment alternative minimum taxable income as a tax preference
item. "Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, 75% of the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
ALABAMA TAXES
Shareholders of the Fund will not be subject to Alabama personal income taxes on
dividends received from the Fund to the extent that such dividends are
attributable to interest earned on obligations that would be exempt from Alabama
personal income taxes if held directly by shareholders (such as obligations of
Alabama or its political subdivisions, of the United States or of certain
territories or possessions of the United States). To the extent that
distributions by the Fund are derived from long-term or short-term capital gains
on such obligations, or from dividends or capital gains on other types of
obligations, such distributions will not be tax exempt from Alabama personal
income tax.
Shareholders may exclude from the share value of the Fund, for purpose of the
Alabama personal property tax, that portion of the total share value which is
attributable to the value of obligations of Alabama or its political
subdivisions, of the United States or of certain territories or possessions of
the United States.
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from regular state income taxes in
states other than Alabama or from personal property taxes. State laws differ on
this issue and shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield, effective yield, and
tax-equivalent yield.
The Fund's yield represents the annualized rate of income earned on an
investment in the Fund over a seven-day period. It is the annualized dividends
earned during the period on the investment, shown as a percentage of the
investment. The effective yield is calculated similarly to the yield, but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment. The
tax-equivalent yield of the Fund is calculated similarly to the yield, but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal their actual yield, assuming a specific tax rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in the Fund after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
From time to time, the Fund may advertise its performance using certain
reporting services and/or compare its performance to certain indices.
<TABLE>
<S> <C> <C>
ADDRESSES
- --------------------------------------------------------------------------------
Fund
Alabama Municipal Cash Trust Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent, and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
ALABAMA MUNICIPAL
CASH TRUST
PROSPECTUS
A Non-Diversified Portfolio of
Federated Municipal Trust,
An Open-End, Management
Investment Company
December 1, 1993
[LOGO] FEDERATED SECURITIES CORP.
-----------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3090802A (12/93)
ALABAMA MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT AND SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 1, 1993
A. Please insert the following information as a second paragraph under
the subsection entitled "Fund Ownership" on page 6:
"As of May 10, 1994, the following shareholders of record owned 5% or more
of the outstanding shares of the Fund: J. Jones & Company, Almore,
Alabama, owned approximately 1,898,684 shares (7.6%); First National Bank
of Brewton, Brewton, Alabama, owned approximately 2,086,221, shares
(8.4%); McGriff & Seibels, Birmingham, Alabama, owned approximately
1,281,617 shares (5.1%); and UBAT & Co., Union Bank & Trust Co.
Montgomery, Alabama, owned approximately 7,322,268 shares (29.3%)."
B. Please insert the following as the second paragraph under the subsection
entitled "Advisory Fees" on page 7:
"From the Fund's date of initial public investment, December 2, 1993 to
April 30, 1994, the Fund's adviser earned $65,163, all of which was
voluntarily waived."
C. Please delete the paragraph under the Section entitled "Administrative
Services" on page 7 and replace it with the following:
"Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. Prior to March 1, 1994, Federated
Administrative Services, Inc., also a subsidiary of Federated Investors,
served as the Fund's administrator. John A. Staley, IV, an officer of the
Trust and Dr. Henry J. Gailliot, an officer of Federated Management, the
adviser to the Fund, hold approximately 15% and 20%, respectively, of the
outstanding common stock and serve as directors of Commercial Data
Services, Inc., a company which provides computer processing services to
Federated Administrative Services, Inc., and Federated Administrative
Services. From the Fund's date of initial public investment, December 2,
1993, to April 30, 1994, the Fund did not incur any costs for
administrative services."
D. Please insert the following section entitled "Shareholder Services Plan"
after the section entitled "Administrative Services" on page 7. In
addition, please add the heading to the Table of Contents:
"SHAREHOLDER SERVICES PLAN
This arrangement permits the payment of fees to Federated Shareholder
Services and, indirectly, to Financial Institutions 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, 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. From the
Fund's date of initial public investment, December 2, 1993, to
April 30, 1994, payments in the amount of $3,063 were made pursuant to
the Shareholder Services Plan."
E. Please insert the following information as the first paragraph under the
section entitled "Yield" on page 10:
"The Fund's yield for the seven-day period ended April 30, 1994, was
2.45%."
F. Please insert the following information as the first paragraph under the
section entitled "Effective Yield" on page 10:
"The Fund's effective yield for the seven-day period ended April 30, 1994,
was 2.48%."
G. Please insert the following information as the first paragraph under the
section entitled "Tax-Equivalent Yield" on page 10:
"The Fund's tax-equivalent yield for the seven-day period ended April 30,
1994 was 3.66% assuming a 28% tax rate and 3.83% assuming a 31% tax rate."
May 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
-----------------------------------------------------------------------
Distributor
4041805A (5/94)
ALABAMA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Alabama Municipal Cash Trust (the "Fund") dated December
1, 1993. This Statement is not a prospectus itself. To receive a copy
of the prospectus, write or call Federated Municipal Trust.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 1, 1993
[LOGO] FEDERATED SECURITIES CORP.
-----------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Acceptable Investments 1
When-Issued and Delayed
Delivery Transactions 1
Temporary Investments 2
Investment Limitations 2
Alabama Investment Risks 3
TRUST MANAGEMENT 4
- ---------------------------------------------------------------
Officers and Trustees 4
Fund Ownership 6
The Funds 6
Trustee Liability 7
INVESTMENT ADVISORY SERVICES
7
- ---------------------------------------------------------------
Adviser to the Fund 7
Advisory Fees 7
ADMINISTRATIVE SERVICES 7
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 7
- ---------------------------------------------------------------
PURCHASING SHARES 8
- ---------------------------------------------------------------
Conversion to Federal Funds 8
DETERMINING NET ASSET VALUE 8
- ---------------------------------------------------------------
Use of Amortized Cost Method 8
REDEEMING SHARES 9
- ---------------------------------------------------------------
Redemption in Kind 9
TAX STATUS 9
- ---------------------------------------------------------------
The Fund's Tax Status 9
YIELD 10
- ---------------------------------------------------------------
EFFECTIVE YIELD 10
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 10
- ---------------------------------------------------------------
Tax-Equivalency Table 10
PERFORMANCE COMPARISONS 11
- ---------------------------------------------------------------
APPENDIX 12
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was
established as a Massachusetts business trust under a Declaration of Trust dated
September 1, 1989.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income exempt from federal
regular income tax and the income tax imposed by the State of Alabama consistent
with stability of principal. The investment objective cannot be changed without
approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of the
State of Alabama and of other states, territories and possessions of the United
States, including the District of Columbia, and any political subdivision or
financing authority of any of these, the income from which is, in the opinion of
qualified legal counsel, exempt from both federal regular income tax and the
income taxes imposed by the State of Alabama.
When determining whether an Alabama municipal security presents minimal credit
risks, the investment adviser considers the creditworthiness of the issuer of
the security, the issuer of a demand feature if the Fund has the unconditional
right to demand payment for the security, or the guarantor of payment by either
of those issuers.
If a security loses its rating or the security's rating is reduced below the
required minimum after the Fund purchased it, the Fund is not required to sell
the security. The investment adviser considers this event, however, in its
determination of whether the Fund should continue to hold the security in its
portfolio. If ratings made by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") change because of changes in those
organizations or in their rating systems, the Fund will try to use comparable
ratings as standards in accordance with the investment policies described in the
Fund's prospectus.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests which represent undivided proportional interests in lease
payments by a governmental or non-profit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that
the participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they became
due. In the event of a default or failure of appropriation, unless the
participation interests are credit enhanced, it is unlikely that the
participants would be able to obtain an acceptable substitute source of
payment.
Under the criteria currently established by the Board of Trustees
("Trustees"), the Fund's investment adviser must consider the following
factors in determining the liquidity of municipal lease securities: (1)
the frequency of trades and quotes for the security; (2) the volatility
of quotations and trade prices for the security; (3) the number of
dealers willing to purchase or sell the security and the number of
potential purchasers; (4) dealer undertakings to make a market in the
security; (5) the nature of the security and the nature of the
marketplace trades; (6) the rating of the security and the financial
condition and prospects of the issuer of the security; and (7) such other
factors as may be relevant to the Fund's ability to dispose of the
security. In the case of a municipal lease security, the adviser must
also consider the following additional factors: (a) whether the lease can
be terminated by the lessee; (b) the potential recovery, if any, from a
sale of the leased property upon termination of the lease; (c) the
lessee's general credit strength; (d) the likelihood that the lessee will
discontinue appropriating funding for the leased property because the
property is no longer deemed essential to its operations; and (e) any
credit enhancement or legal recourse provided upon an event of
nonappropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated 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 total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in high quality temporary investments during times of
unusual market conditions for defensive purposes and to maintain liquidity.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers and
other recognized financial institutions sell U.S. government securities
or other securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price within one year
from the date of acquisition. The Fund or its custodian will take
possession of the securities subject to repurchase agreements and these
securities will be marked to market daily. To the extent that the
original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities. In the event that a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be
delayed pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such
as broker/dealers, which are deemed by the Fund's investment adviser to
be creditworthy pursuant to guidelines established by the Trustees.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess of 5% of
its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of its total assets at the time of the pledge.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire
publicly or nonpublicly issued Alabama municipal securities or temporary
investments or enter into repurchase agreements, in accordance with its
investment objective, policies, limitations, and its Declaration of
Trust.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of
the value of its assets in cash or cash items (the Fund considers cash
items to be instruments issued by a U.S. branch of a domestic bank or
savings and loan having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment), securities issued or
guaranteed by the U.S. government, its agencies, or instrumentalities, or
instruments secured by these money market instruments, such as repurchase
agreements.
The above investment limitations cannot be changed without shareholder approval.
The following investment limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
RESTRICTED SECURITIES
The Fund will not invest more than 10% of its total assets in securities
subject to restrictions on resale under the Securities Act of 1933 except
for certain restricted securities which meet the criteria for liquidity
as established by the Trustees.
ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
securities which are illiquid, including repurchase agreements providing
for settlement in more than seven days after notice, certain restricted
securities not determined by the Trustees to be liquid, and
non-negotiable fixed time deposits with maturities over seven days.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies,
except as part of a merger, consolidation, reorganization, or other
acquisition.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
industrial development bonds or other municipal securities where the
principal and interest is the responsibility of companies (or guarantors,
where applicable) with less than three years of continuous operations,
including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or its investment adviser, owning
individually more than 1/2 of 1% of the issuer's securities, together own
more than 5% of the issuer's securities.
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs, or leases.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its net assets during the coming fiscal year.
In order to comply with certain state restrictions, the Fund will not invest in
real estate limited partnerships or oil, gas or other mineral leases.
ALABAMA INVESTMENT RISKS
The State of Alabama has experienced some diversification of its economy
primarily centered around its metropolitan areas. Agriculture, once dominant
prior to World War II, gave way to the manufacturing of textiles, chemicals,
paper and metals. Manufacturing comprises roughly 23% of Alabama's
non-agricultural employment, slightly higher than the rest of the U.S. Other
major non-agricultural sectors include government (20%), wholesale and retail
trade (22%), and services including finance, insurance, and real estate (24%).
Over the last decade, the economy has further diversified with the addition of
high-tech firms to the Huntsville area and healthcare services in the Birmingham
area. During the 1982 recession Alabama's unemployment rate climbed to the
double digits. However, the recent recession has not been quite as severe to the
Alabama economy. The State's unemployment rate has reflected the national trends
and was recently below the national average (6.5%, November 30, 1992). However,
the signing
of The North American Free Trade Agreement could result in job losses in some of
Alabama's traditional industries as Mexico offers a lower-cost environment.
Alabama's overall debt structure is more complex than most states, due to the
many issuing authorities. Roughly 60% of Alabama's debts are special or limited
tax obligations, payable from designated sources. Debt service as a percentage
of budget revenues is currently 5.5%, which is among the ten highest in the
nation. However, because Alabama generally taxes and spends less than most
states, debt service appears as a larger part of its revenue in relation to
other states. Debt service on a per capita basis is moderate. The State has a
strong balanced budget act that allows spending only from moneys on hand. The
Governor has the ability to prorate budgeted expenditures during the fiscal year
in order to balance the budget. The proration ability of the Governor is
currently being challenged in court. The outcome may adversely affect the
mechanism by which the budget is balanced.
The Fund's concentration in securities issued by the State and its political
subdivisions provides a greater level of risk than a fund whose assets are
diversified across numerous states and municipal issuers. The ability of the
State or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political, and demographic
conditions within the State; and the underlying fiscal condition of the State,
its counties, and its municipalities.
TRUST MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Management,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, Inc., and the Funds (as defined below).
<TABLE>
<CAPTION>
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, AEtna Life and Casualty Company; Chief Executive Officer and
Director, Trustee, or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company. Mr. Donahue is the father
of J. Christopher Donahue, Vice President of the Trust.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President,
Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate
Department Village Development Corporation; General Partner or Trustee in private
John R. Wood and real estate ventures in Southwest Florida; Director, Trustee, or
Associates, Inc., Realtors Managing General Partner of the Funds; formerly, President, Naples
3255 Tamiami Trail North Property Management, Inc.
Naples, FL
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
PNC Plaza Director, Trustee, or Managing General Partner of the Funds; formerly,
23rd Floor Vice Chairman and Director, PNC Bank, N.A. and PNC Bank Corp. and
Pittsburgh, PA Director, Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director,
Concord, MA Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Glen R. Johnson* President and Trustee, Federated Investors; President and/or Trustee of some of the
Federated Investors Tower Trustee Funds; staff member, Federated Securities Corp. and Federated
Pittsburgh, PA Administrative Services, Inc.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly,
Boston, MA President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Learning Endowment for International Peace, OnLine Computer Library Center, Inc.,
University of Pittsburgh RAND Corporation, and U.S. Space Foundation; Chairman, Czecho Slovak
Pittsburgh, PA Management Center; Director, Trustee or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Tower Federated Management, and Federated Research; President and Director,
Pittsburgh, PA Federated Administrative Services, Inc.; Trustee, Federated Services
Company; President or Vice President of the Funds; Director, Trustee or
Managing General Partner of some of the Funds. Mr. Donahue is the son of
John F. Donahue, Chairman and Trustee of the Trust.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director, Federated Securities Corp.; President or Vice President of the
Pittsburgh, PA Funds; Director or Trustee of some of the Funds.
Edward C. Gonzales Vice President Vice President, Treasurer and Trustee, Federated Investors; Vice
Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Trustee, Federated Services Company; Executive Vice
President, Treasurer, and Director, Federated Securities Corp.;
Chairman, Treasurer, and Director, Federated Administrative Services,
Inc.; Trustee or Director of some of the Funds; Vice President and
Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors Tower and Secretary Investors; Vice President, Secretary and Trustee, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary, and Director,
Federated Administrative Services, Inc.; Director and Executive Vice
President, Federated Securities Corp.; Vice President and Secretary of
the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Vice President
of the Funds; Director, Trustee, or Managing General Partner of some of
the Funds; formerly, Vice President, The Standard Fire Insurance Compa-
ny and President of its Federated Research Division.
</TABLE>
*This Trustee is deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940, as amended.
\Member of the Trust's Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Trustees between meetings of
the Trustees.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series, Inc.; Cash Trust
Series II; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
FT Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated
GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High
Yield Trust; Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Intermediate Government Trust; Federated
Intermediate Municipal Trust; Federated Master Trust; Federated Municipal Trust;
Federated Short-Intermediate Government Trust; Federated Short-Intermediate
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility
Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income
Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust,
Inc.--1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
New York Municipal Cash Trust; 111 Corcoran Funds; The Planters Funds; Portage
Funds; RIMCO Monument Funds; The Shawmut Funds; Signet Select Funds; Star Funds;
The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Targeted
Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government Securities; and
Trust for U.S. Treasury Obligations.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management. Federated Management is a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are
- --------------------------------------------------------------------------------
John F. Donahue, his wife, and his son, J. Christopher Donahue. John F. Donahue
is Chairman and Trustee, Federated Management; Chairman and Trustee, Federated
Investors; and Chairman and Trustee of the Trust. John A. Staley, IV, is
President and Trustee, Federated Management; Vice President and Trustee,
Federated Investors; Executive Vice President, Federated Securities Corp.; and
Vice President of the Trust. J. Christopher Donahue is Trustee, Federated
Management; President and Trustee, Federated Investors; President and Director,
Federated Administrative Services, Inc.; and Vice President of the Trust. John
W. McGonigle is Vice President, Secretary, and Trustee, Federated Management;
Vice President, Secretary, General Counsel, and Trustee, Federated Investors;
Executive Vice President, Secretary and Director, Federated Administrative
Services, Inc.; Executive Vice President and Director, Federated Securities
Corp; and Vice President and Secretary of the Trust.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
These arrangements are not part of the advisory contract and have been
established only to comply with applicable state authorities. They may be
amended or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund at approximate cost.
John A. Staley, IV, an officer of the Trust, and Dr. Henry J. Gailliot, an
officer of Federated Management, the adviser to the Fund, hold approximately 15%
and 20%, respectively, of the outstanding common stock and serve as directors of
Commercial Data Services, Inc., a company which provides computer processing
services to Federated Administrative Services, Inc. For the fiscal years ended
October 31, 1992, 1991 and 1990, Federated Administrative Services, Inc. paid
approximately $189,741, $187,677 and $174,794, respectively, for services
provided by Commercial Data Services, Inc.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the investment adviser will generally use those
who are recognized dealers in specific portfolio instruments, except when a
better price and execution of the order can be obtained elsewhere. The adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising other accounts. To the extent that
receipt of these services may supplant services for which the adviser or its
affiliates might otherwise have paid, it would tend to reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve Wire System are open for business.
The procedure for purchasing shares is explained in the prospectus under
"Investing in the Fund."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. 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. Net
asset value will not be calculated on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
USE OF AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7, as amended (the
"Rule"), promulgated by the Securities and Exchange Commission under the
Investment Company Act of 1940. Under the Rule, the Trustees must establish
procedures reasonably designed to stabilize the net asset value per share, as
computed for purposes of distribution and redemption, at $1.00, taking into
account current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party (1) on no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
Although demand features and standby commitments are techniques and are defined
as "puts" under the Rule, the Fund does not consider them to be "puts" as that
term is used in the Fund's investment limitations. Demand features and standby
commitments are features which enhance an instrument's liquidity, and the
investment limitation which proscribes puts is designed to prohibit the purchase
and sale of put and call options and is not designed to prohibit the Fund from
using techniques which enhance the liquidity of portfolio instruments.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.5% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risk and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per
share. In addition, no instrument with a remaining maturity of more than
397 days can be purchased by the Fund. For the treatment of Variable Rate
Municipal Securities with demand features, refer to "Variable Rate Demand
Notes" in the prospectus.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares of
the Fund, computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above, may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although State Street Bank does not charge
for telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To the extent available,
such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Fund
must, among other requirements:
derive at least 90% of its gross income from dividends, interest, and gains
from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
YIELD
- --------------------------------------------------------------------------------
The Fund calculates its yield based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by:
determining the net change in the value of a hypothetical account with a
balance
of one share at the beginning of the base period, with the net change excluding
capital changes but including the value of any additional shares purchased with
dividends earned from the original one share and (on funds that pay dividends
daily) all dividends declared on the original and any purchased shares;
dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Fund's effective yield is computed by compounding the unannualized base
period return by:
adding 1 to the base period return;
raising the sum to the 365/7th power; and
subtracting 1 from the result.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The Fund's tax-equivalent yield is calculated similarly to the yield, but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal
rate for individuals) assuming that income earned is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Fund's
portfolio generally remains free from federal regular income tax,* and is
often free from state and local taxes as well. As the table below
indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between tax-free and taxable
yields.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1993
STATE OF ALABAMA
- ------------------------------------------------------------------------------
COMBINED FEDERAL AND STATE INCOME TAX BRACKET
20.00% 33.00% 36.00% 41.00% 44.60%
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
Joint $1- $36,901- $89,151- $140,001- Over
Return: 36,900 89,150 140,000 250,000 $250,000
Single $1- $22,101- $53,501- $115,001- Over
Return: 22,100 53,500 115,000 250,000 $250,000
- ------------------------------------------------------------------------------
<CAPTION>
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
2.00% 2.50% 2.99% 3.13% 3.39% 3.61%
2.50 3.13 3.73 3.91 4.24 4.51
3.00 3.75 4.48 4.69 5.08 5.42
3.50 4.38 5.22 5.47 5.93 6.32
4.00 5.00 5.97 6.25 6.78 7.22
4.50 5.63 6.72 7.03 7.63 8.12
5.00 6.25 7.46 7.81 8.47 9.03
5.50 6.88 8.21 8.59 9.32 9.93
6.00 7.50 8.96 9.38 10.17 10.83
6.50 8.13 9.70 10.16 11.02 11.73
7.00 8.75 10.45 10.94 11.86 12.64
</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. It is not an indicator of
past or future performance of the Fund.
*Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local regular or alternative minimum taxes.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of the Fund depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates on money market instruments;
changes in the Fund's expenses; and
the relative amount of Fund cash flow.
From time to time, the Fund may advertise its performance compared to similar
funds or portfolios using certain indices, reporting services, and financial
publications. They 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 "tax-exempt
money market fund" category in advertising and sales literature.
MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk adjusted
returns. The maximum rating is five stars and ratings are effective for two
weeks.
Investors may use such an index in addition to the prospectus of the Fund to
obtain a more complete view of the performance of the Fund before investing. Of
course, when comparing performance of the Fund to any index, factors such as
composition of the index and prevailing market conditions should be considered
in assessing the significance of such comparisons. When comparing funds using
reporting services, or total return and yield, investors should take into
consideration any relevant differences in funds such as permitted portfolio
composition and methods used to value portfolio securities and compute offering
price.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on the monthly reinvestment of dividends over a specified period of
time.
APPENDIX
- --------------------------------------------------------------------------------
MUNICIPAL BOND RATING DEFINITIONS
STANDARD AND POOR'S CORPORATION
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC--Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
outweighed by large uncertainties of major risk exposure to adverse conditions.
C--The rating C is reserved for income bonds on which no interest is being paid.
D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arreas.
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characterstics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
STANDARD AND POOR'S CORPORATION
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC.
Moody's short-term ratings are designated Moody's Investment Grade (MIG OR VMIG
(see below)). The purpose of the MIG or VMIG rating is to provide investors with
a simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS)
AND
TENDER OPTION BONDS (TOBS)
RATINGS
STANDARD AND POOR'S CORPORATION
Standard & Poor's assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The
definitions for the short-term ratings are provided below).
MOODY'S INVESTORS SERVICE, INC.
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics are payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity.
In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the
first representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the second representing an evaluation of
the degree of risk associated with the demand feature. The VMIG rating can be
assigned a 1 or 2 designation using the same definitions described above for the
MIG rating.
COMMERCIAL PAPER (CP) RATINGS
STANDARD AND POOR'S CORPORATION
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."
MOODY'S INVESTORS SERVICE, INC.
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
The following is an explanation of the Fitch ratings. These ratings are not
referenced in the Portfolio of Investments.
FITCH TAX-EXEMPT INVESTMENT NOTE 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.
NR NR indicates that both the bonds and the obligor or credit enhancer are
currently rated by Standard and Poor's Corporation or Moody's Investors
Service, Inc. with respect to short term indebtedness. However, management
considers them to be of comparable quality to securities rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
"AAA" by Standard and Poor's Corporation or "Aaa" by Moody's Investors
Service, Inc.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
"AA" by Standard and Poor's Corporation or "Aa" by Moody's Investors
Service, Inc.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated
"A" by Standard and Poor's Corporation or Moody's Investors Service, Inc.
3090802B (12/93)
NORTH
CAROLINA
MUNICIPAL
CASH
TRUST
SEMI-ANNUAL REPORT AND
SUPPLEMENT TO PROSPECTUS
DATED DECEMBER 1, 1993
May 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A Subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
4041814A (5/94)
NORTH CAROLINA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT AND SUPPLEMENT TO PROSPECTUS DATED DECEMBER 1, 1993
A. Please delete the "Summary of Fund Expenses" table on page 1 of the
prospectus and replace it with the following table:
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
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 FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
<S> <C> <C>
Management Fee (after waiver) (1)......................................................................... 0.11%
12b-1 Fee................................................................................................. None
Total Other Expenses...................................................................................... 0.48%
Shareholder Services Fee................................................................... 0.25%
Total Fund Operating Expenses (2)................................................................ 0.59%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.50%.
(2) The Total Fund Operating Expenses are estimated to be 0.98%, absent the
anticipated voluntary waiver of a portion of the management fee.
* Total Fund Operating Expenses are estimated based on average expenses
expected to be incurred during the period ending October 31, 1994. During the
course of this period, expenses may be more or less than the average amount
shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS
COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR
INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES,
SEE "INVESTING IN THE FUND" 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
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period................................................. $6 $19
</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. THIS EXAMPLE
IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING OCTOBER 31, 1994.
B. Please insert the following "Financial Highlights" table as page 2 of the
prospectus following the "Summary of Fund Expenses" and before the section
entitled "General Information." In addition, please add the heading
"Financial Highlights" to the Table of Contents page after the heading
"Summary of Fund Expenses."
NORTH CAROLINA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1994*
<S> <C>
- ---------------------------------------------------------------------------------------------- -------------------
NET ASSET VALUE, BEGINNING OF PERIOD $1.00
- ----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------
Net investment income 0.01
- ---------------------------------------------------------------------------------------------- -------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.01 )
- ---------------------------------------------------------------------------------------------- -------------------
NET ASSET VALUE, END OF PERIOD $1.00
- ---------------------------------------------------------------------------------------------- -------------------
TOTAL RETURN** 0.74%
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------
Expenses 0.25%(b)
- ----------------------------------------------------------------------------------------------
Net investment income 2.41%(b)
- ----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.56%(b)
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $121,475
- ----------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 31, 1993 (date of initial
public investment) to April 30, 1994 (unaudited).
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
C. Please insert the following information as a subsection entitled "Other
Payments to Financial Institutions" on page 8 of the prospectus after the
subsection entitled "Adviser's Background", and add the heading "Other
Payments to Financial Institutions" to the Table of Contents:
"OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Shareholder Services Plan, 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."
D. Please delete the section entitled "Administrative Arrangements" on page 8
of the prospectus and its corresponding heading from the Table of Contents
page and insert the subsection "Adminstrative Services" as follows:
"ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors ("Federated Funds"), as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</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."
E. Please insert the following information as a subsection entitled
"Shareholder Services Plan" on page 8 of the prospectus after the section
entitled "Administrative Services," and add the heading "Shareholder
Services Plan" to the Table of Contents:
"SHAREHOLDER SERVICES PLAN. 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 personal 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."
F. Please insert the following information as a subsection entitled
"Checkwriting" after the subsection entitled "Receiving Payment" on page
12 of the prospectus, and add the heading "Checkwriting" to the Table of
Contents:
"CHECKWRITING. At the shareholder's request, State Street Bank will establish a
checking account for redeeming shares. For further information, contact
Federated Securities Corp.
A fee may be charged for this service. With a Fund checking account, shares may
be redeemed simply by writing a check. The redemption will be made at the net
asset value on the date that State Street Bank presents the check to the Fund. A
check may not be written to close an account. If a shareholder wishes to redeem
shares and has the proceeds available, a check may be written and negotiated
through the shareholder's bank. Checks should never be sent to State Street Bank
to redeem shares. Cancelled checks are returned to the shareholder each month."
G. Please delete the section entitled "Redemption Before Purchase Instruments
Clear" on
page 12 of the prospectus. In addition, please delete the heading from the
Table of Contents.
H. Please insert the following financial statements beginning as page 16 of
the prospectus. In addition, please add the heading "Financial Statements"
to the Table of Contents page immediately before "Addresses."
NORTH CAROLINA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S,
PRINCIPAL S&P OR
AMOUNT FITCH* VALUE
<C> <S> <C> <C>
- ------------- -------------------------------------------------------------------- ----------- ---------------
SHORT-TERM MUNICIPAL SECURITIES--99.1%
- -----------------------------------------------------------------------------------
NORTH CAROLINA--94.2%
--------------------------------------------------------------------
$ 1,755,000 Alamance County, NC, IDA Weekly VRDNs (Series B) (Culp, Inc.)/(First
Union National Bank LOC) P-1 $ 1,755,000
--------------------------------------------------------------------
1,650,000 Angier, NC, 2.75% Sanitary Sewer BANs, 8/31/94 NR 1,650,264
--------------------------------------------------------------------
2,000,000 Bladen County, NC, Industrial Facilities & Pollution Control
Financing Authority Weekly VRDNs (Series 1993)/ (BCH Energy,
L.P.)/(Bank of Tokyo Ltd. LOC)/(Subject to AMT) VMIG1 2,000,000
--------------------------------------------------------------------
1,000,000 Bladen County, NC, Industrial Facilities & Pollution Control
Financing Authority Weekly VRDNs (Series 1993)/ (Harriet & Henderson
Yarns, Inc.)/ (NationsBank of North Carolina N.A. LOC)/(Subject to
AMT) A-1 1,000,000
--------------------------------------------------------------------
1,600,000 Buncombe County, NC, Industrial Facilities & Pollution Control
Financing Authority Weekly VRDNs (Series 1991)/ (Rich Mount,
Inc.)/(Bank of Tokyo Ltd. LOC)/(Subject to AMT) A-1 1,600,000
--------------------------------------------------------------------
600,000 Burke County, NC, Industrial Facilities & Pollution Control
Financing Authority Weekly VRDNs (Norwalk Furniture Corp., Hickory
Hill)/(Branch Banking & Trust Co. LOC)/ (Subject to AMT) P-1 600,000
--------------------------------------------------------------------
$ 1,000,000 Catawba County, NC, Industrial Facilities & Pollution Control
Financing Authority Weekly VRDNs (Series 1992)/ (WSMP,
Inc.)/(NationsBank of North Carolina N.A. LOC)/ (Subject to AMT) A-1 $ 1,000,000
--------------------------------------------------------------------
2,000,000 Charlotte, NC, Airport Refunding Revenue Bonds Weekly VRDNs (Series
1993A)/(MBIA Insured)/(Industrial Bank of Japan Ltd. LIQ) A-1 2,000,000
--------------------------------------------------------------------
3,000,000 Charlotte, NC, Revenue Refunding Certificates of Participation
Weekly VRDNs (AMBAC Insured)/(Merrill Lynch Capital Services, Inc.
LIQ), R VMIG1 3,000,000
--------------------------------------------------------------------
2,459,292 Charlotte, NC, Weekly VRDNs Floating Rate Trust Certificate (Series
1992)/(Credit Suisse Financial Products LIQ), R P-1 2,459,292
--------------------------------------------------------------------
1,224,000 Duplin County, NC, Water District, 3.40% BANs, 7/20/94 NR 1,225,595
--------------------------------------------------------------------
2,000,000 Durham, NC, Public Improvement Bonds Weekly VRDNs (Series 1993) A-1+ 2,000,000
--------------------------------------------------------------------
1,800,000 Fayetteville, NC, Public Works Commission Revenue
Refunding Bonds Weekly VRDNs (FGIC Insured)/(Merrill Lynch Capital
Services, Inc. LIQ), R VMIG1 1,800,000
--------------------------------------------------------------------
500,000 Forsyth County, NC, Industrial Facilities & Pollution
Control Financing Authority Weekly VRDNs (Series 1991)/
(Microfibres, Inc.)/(NationsBank of North Carolina N.A.
LOC)/(Subject to AMT) P-1 500,000
--------------------------------------------------------------------
1,500,000 Franklin County, NC, Industrial Facilities & Pollution
Control Financing Authority Weekly VRDNs (Series 1992)/ (Doninger
Metals Corp.)/(Branch Banking & Trust Co., Wilson LOC)/(Subject to
AMT) P-1 1,500,000
--------------------------------------------------------------------
$ 1,800,000 Guilford County, NC, Industrial Facilities & Pollution
Control Financing Authority Weekly VRDNs (Series 1989)/ (Bonset
America Corp.)/(Industrial Bank of Japan Ltd. LOC)/(Subject to AMT) A-1 $ 1,800,000
--------------------------------------------------------------------
3,795,000 Halifax County, NC, Industrial Facilities & Pollution Control
Financing Authority Daily VRDNs (Series 1993)/ (Westmoreland-LG&E
Partners)/(Credit Suisse LOC)/(Subject to AMT) A-1+ 3,795,000
--------------------------------------------------------------------
1,400,000 Iredell County, NC, Industrial Facilities & Pollution Control
Financing Authority Weekly VRDNs (Series 1992)/ (Thorneburg Hosiery
Co., Inc.)/(NationsBank of North
Carolina N.A. LOC)/(Subject to AMT) A-1 1,400,000
--------------------------------------------------------------------
5,000,000 Lee County, NC, Industrial Facilities & Pollution Control Financing
Authority Weekly VRDNs (Series 1989)/ (Avondale Mills, Inc.)/(Trust
Company Bank LOC) P-1 5,000,000
--------------------------------------------------------------------
2,000,000 Mecklenberg County, NC, Industrial Facilities & Pollution Control
Financing Authority Weekly VRDNs (Manhasset Bay Associates)/(Bank of
Tokyo Ltd. LOC)/(Subject to AMT) A-1 2,000,000
--------------------------------------------------------------------
3,680,000 Mecklenberg County, NC, Industrial Facilities & Pollution Control
Financing Authority Weekly VRDNs (Series 1988)/ (Florida Steel
Corp.)/(Bankers Trust Company LOC) P-1 3,680,000
--------------------------------------------------------------------
3,500,000 New Hanover County, NC, Industrial Facilities & Pollution Control
Financing Authority Weekly VRDNs (Series 1993)/ (Efson,
Inc.)/(Branch Banking & Trust Co., Wilson LOC)/ (Subject to AMT) P-1 3,500,000
--------------------------------------------------------------------
500,000 North Carolina Eastern Municipal Power Agency, 2.35% CP (Series
1988B)/(Morgan Guaranty Trust Co. and Union Bank of Switzerland
LOCs), Mandatory Tender 5/23/94 A-1+ 500,000
--------------------------------------------------------------------
$ 1,662,000 North Carolina Eastern Municipal Power Agency, 2.65% CP (Industrial
Bank of Japan Ltd. LOC), Mandatory Tender 6/9/94 A-1 $ 1,662,000
--------------------------------------------------------------------
2,000,000 North Carolina Educational Facilities Finance Agency Weekly VRDNs
(Series 1987A)/(Duke University) A-1+ 2,000,000
--------------------------------------------------------------------
2,000,000 North Carolina Educational Facilities Finance Agency Weekly VRDNs
(Series 1990)/(Bowman Gray School of Medicine)/(Wachovia Bank &
Trust Co. N.A. LOC) VMIG1 2,000,000
--------------------------------------------------------------------
1,000,000 North Carolina Medical Care Commission Hospital Revenue Bonds Weekly
VRDNs (Series 1992B)/(North Carolina Baptist Hospital) A-1+ 1,000,000
--------------------------------------------------------------------
1,600,000 North Carolina Medical Care Commission Hospital Revenue Bonds Weekly
VRDNs (Series 1993)/(Moses H. Cone Memorial Hospital) A-1+ 1,600,000
--------------------------------------------------------------------
5,000,000 North Carolina Medical Care Commission Hospital Weekly VRDNs (Series
1986AZ)/(MBIA Insured)/(Banque Paribas LIQ) VMIG1 5,000,000
--------------------------------------------------------------------
5,400,000 North Carolina Medical Care Commission Hospital Weekly VRDNs (Series
1991B)/(Hospital Pool Program)/(First Union National Bank LOC) VMIG1 5,400,000
--------------------------------------------------------------------
9,000,000 North Carolina Medical Care Commission Hospital Weekly VRDNs (Series
1993A)/(Duke University Hospital) A-1+ 9,000,000
--------------------------------------------------------------------
520,000 North Carolina Municipal Power Agency Pound1, 2.40% CP (Catawba
Electric), Mandatory Tender 5/24/94 A-1 520,000
--------------------------------------------------------------------
2,000,000 North Carolina Municipal Power Agency Pound1, 2.75% CP (Catawba
Electric), Mandatory Tender 8/15/94 A-1 2,000,000
--------------------------------------------------------------------
4,000,000 North Carolina State Capital Improvement, 4.60% GO Bonds (Series A),
2/1/95 AAA 4,044,215
--------------------------------------------------------------------
$ 4,000,000 Onslow County, NC, Industrial Facilities & Pollution Control
Financing Authority Weekly VRDNs (Mine Safety
Appliances Co.)/(Sanwa Bank Ltd. LOC) A-1+ $ 4,000,000
--------------------------------------------------------------------
3,190,000 Orange County, NC, Industrial Facilities & Pollution
Control Financing Authority Weekly VRDNs (Mebane Packaging
Corp.)/(First Union National Bank LOC)/(Subject to AMT) A-1 3,190,000
--------------------------------------------------------------------
2,100,000 Person County, NC, Industrial Facilities & Pollution Control
Financing Authority Daily VRDNs (Series 1986)/(Carolina Power &
Light Co.)/(Fuji Bank Ltd. LOC)/(Subject to AMT) VMIG1 2,100,000
--------------------------------------------------------------------
1,400,000 Piedmont Triad Airport Authority Weekly VRDNs (Triad International
Maintenance Corp.)/(Mellon Bank N.A. LOC)/(Subject to AMT) P-1 1,400,000
--------------------------------------------------------------------
2,200,000 Randolph County, NC, Industrial Facilities & Pollution Control
Financing Authority Weekly VRDNs (Series 1990)/ (Wayne Steel,
Inc.)/(Bank One, Akron LOC)/(Subject to AMT) P-1 2,200,000
--------------------------------------------------------------------
5,000,000 Richmond County, NC, Industrial Facilities & Pollution Control
Financing Authority Weekly VRDNs (Series 1991)/ (Bibb
Company)/(Citibank N.A. LOC)/(Subject to AMT) A-1 5,000,000
--------------------------------------------------------------------
3,200,000 Rutherford County, NC, Industrial Facilities Pollution
Control Financing Authority Weekly VRDNs (Spring-Ford Knitting
Co.)/(Branch Banking & Trust Co. LOC)/(Subject to AMT) P-1 3,200,000
--------------------------------------------------------------------
2,750,000 University of North Carolina, 2.70% CP (Series 1989)/ (University of
NC at Chapel Hill General Alumni Assoc.)/ (Credit Suisse LOC),
Mandatory Tender 5/19/94 VMIG1 2,750,000
--------------------------------------------------------------------
$ 600,000 Wake County, NC, Industrial Facilities & Pollution Control Financing
Authority, 2.55% CP (Series 1990A)/(Carolina Power & Light
Co.)/(Fuji Bank Ltd. LOC), Mandatory Tender 10/20/94 A-1 $ 600,000
--------------------------------------------------------------------
1,000,000 Wake County, NC, Industrial Facilities & Pollution Control Financing
Authority, 2.70% CP (Series 1990B)/(Carolina Power & Light
Co.)/(Fuji Bank Ltd. LOC), Mandatory Tender 6/15/94 A-1 1,000,000
--------------------------------------------------------------------
1,000,000 Wake County, NC, Industrial Facilities & Pollution Control Financing
Authority, 2.75% CP (Series 1990A)/(Carolina Power & Light
Co.)/(Fuji Bank Ltd. LOC), Mandatory Tender 10/14/94 A-1 1,000,000
--------------------------------------------------------------------
2,000,000 Wake County, NC, Industrial Facilities & Pollution Control Financing
Authority, 2.80% CP (Series 1990A)/(Carolina Power & Light
Co.)/(Fuji Bank Ltd. LOC), Mandatory Tender 7/18/94 A-1 2,000,000
--------------------------------------------------------------------
1,000,000 Wake County, NC, Industrial Facilities & Pollution Control Financing
Authority, 3.00% CP (Series 1990A)/(Carolina Power & Light
Co.)/(Fuji Bank Ltd. LOC), Mandatory Tender 7/22/94 A-1 1,000,000
--------------------------------------------------------------------
4,957,504 Wayne County, NC, Pollution Control Finance Authority Weekly VRDNs
(Cooper Industries)/(Sanwa Bank Ltd. LOC) A-1+ 4,957,504
-------------------------------------------------------------------- ---------------
Total 114,388,870
-------------------------------------------------------------------- ---------------
PUERTO RICO--4.9%
--------------------------------------------------------------------
1,000,000 Commonwealth of Puerto Rico, 3.00% TRANs (Series 1994A), 7/29/94 SP-1+ 1,000,900
--------------------------------------------------------------------
$ 5,000,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit
Suisse and Sumitomo Bank Ltd. LOCs) A-1 $ 5,000,000
-------------------------------------------------------------------- ---------------
Total 6,000,900
-------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS (AT AMORTIZED COST) $ 120,389,770\
-------------------------------------------------------------------- ---------------
</TABLE>
\ Also represents cost for federal tax purposes.
* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings.
Note: The categories of investments are shown as a percentage of net assets
($121,474,782) at
April 30, 1994.
The following abbreviations are used in this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
AMT--Alternative Minimum Tax
BANs--Bond Anticipation Notes
CP--Commercial Paper
FGIC--Financial Guaranty Insurance Company
GO--General Obligation
IDA--Industrial Development Authority
LIQ--Liquidity Agreement
LOC--Letter(s) of Credit
MBIA--Municipal Bond Investors Assurance
R--Denotes restricted securities which are subject to restrictions on resale
under Federal securities laws. These securities are considered liquid under
criteria established by the Board of Trustees.
TRANs--Tax and Revenue Anticipation Notes
VRDNs--Variable Rate Demand Notes
(See Notes which are integral part of the Financial Statements)
NORTH CAROLINA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $ 120,389,770
- ------------------------------------------------------------------------------------------------
Cash 705,882
- ------------------------------------------------------------------------------------------------
Interest receivable 398,426
- ------------------------------------------------------------------------------------------------
Receivable from Adviser 7,500
- ------------------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 33,274
- ------------------------------------------------------------------------------------------------ ---------------
Total assets 121,534,852
- ------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------------
Dividends payable $ 16,643
- -------------------------------------------------------------------------------------
Payable to shareholder servicing agent (Note 4) 5,543
- -------------------------------------------------------------------------------------
Payable to transfer and dividend disbursing agent (Note 4) 3,052
- -------------------------------------------------------------------------------------
Payable for Fund shares redeemed 1,000
- -------------------------------------------------------------------------------------
Accrued expenses 33,832
- ------------------------------------------------------------------------------------- ---------
Total liabilities 60,070
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS for 121,474,782 shares of beneficial interest outstanding $ 121,474,782
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
($121,474,782 / 121,474,782 shares of beneficial interest outstanding) $1.00
- ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NORTH CAROLINA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1994*
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 361,197
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 67,811
- -----------------------------------------------------------------------------------------
Custodian and recordkeeper fees 24,741
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 3,258
- -----------------------------------------------------------------------------------------
Fund share registration costs 2,988
- -----------------------------------------------------------------------------------------
Shareholder services fees (Note 4) 5,543
- -----------------------------------------------------------------------------------------
Legal fees 2,000
- -----------------------------------------------------------------------------------------
Printing and postage 800
- -----------------------------------------------------------------------------------------
Insurance premiums 1,400
- -----------------------------------------------------------------------------------------
Miscellaneous 675
- ----------------------------------------------------------------------------------------- ---------
]Total expenses 109,216
- -----------------------------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 4) $ 67,811
- ------------------------------------------------------------------------------
Reimbursement of other operating expenses (Note 4) 7,500 75,311
- ------------------------------------------------------------------------------ --------- ---------
Net expenses 33,905
- ---------------------------------------------------------------------------------------------------- -----------
Net investment income $ 327,292
- ---------------------------------------------------------------------------------------------------- -----------
</TABLE>
* For the period from December 31, 1993 (date of initial public investment) to
April 30, 1994.
(See Notes which are an integral part of the Financial Statements)
NORTH CAROLINA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1994*
(UNAUDITED)
<S> <C>
- ---------------------------------------------------------------------------------------------- ------------------
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------------------
Net investment income $ 327,292
- ---------------------------------------------------------------------------------------------- ------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2B)--
- ----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (327,292)
- ---------------------------------------------------------------------------------------------- ------------------
FUND SHARE (PRINCIPAL) TRANSACATIONS (NOTE 3)--
- ----------------------------------------------------------------------------------------------
Proceeds from sale of shares 180,078,139
- ----------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends declared 297,006
- ----------------------------------------------------------------------------------------------
Cost of shares redeemed (58,900,363)
- ---------------------------------------------------------------------------------------------- ------------------
Change in net assets from Fund share transactions 121,474,782
- ---------------------------------------------------------------------------------------------- ------------------
Change in net assets 121,474,782
- ----------------------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------------------
Beginning of period --
- ---------------------------------------------------------------------------------------------- ------------------
End of period $ 121,474,782
- ---------------------------------------------------------------------------------------------- ------------------
</TABLE>
* For the period from December 31, 1993 (date of initial public investment) to
April 30, 1994.
(See Notes which are an integral part of the Financial Statements)
NORTH CAROLINA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company.
The Trust consists of twelve, non-diversified portfolios. The financial
statements included herein are only those of North Carolina Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles (GAAP).
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the
Investment Company Act of 1940.
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state, than would be a comparable general
tax-exempt mutual fund. In order to reduce the credit risk associated with
such factors, at April 30, 1994, 78.4% of the securities in the portfolio
of investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The
aggregate percentages by financial institutions and agencies ranged from
0.4% to 8.6% of total investments.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount are amortized as required by
the Internal Revenue Code ("Code"). Distributions to shareholders are
recorded on the ex-dividend date.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
F. RESTRICTED SECURITIES--Restricted securities are securities that may only
be resold upon registration under Federal securities laws or in
transactions exempt from such registration. Many restricted securities may
be resold in the secondary market in transactions exempt from registration.
In some cases, the restricted securities may be resold without registration
upon exercise of a demand feature. Such restricted securities may be
determined to be liquid under criteria established by the Board of
Trustees. The Fund will not incur any registration costs upon such resales.
Restricted securities are valued at amortized cost in accordance with Rule
2a-7 under the Investment Company Act of 1940. Additional information on
each restricted security held at April 30, 1994 is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
Charlotte, NC, Revenue Refunding
Certificates of Participation 3/17/94 and 4/28/94 $ 3,000,000
Charlotte, NC, Weekly VRDNs
Floating Rate Trust Certificates 3/2/94 2,459,292
1,800,000
Fayetteville, NC, Public Works Commission
Revenue Refunding Bonds 1/20/94, 1/31/94,
and 2/28/94
</TABLE>
G. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At April
30, 1994, capital paid-in aggregated $121,474,782. Transactions in Fund shares
were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1994*
<S> <C>
Shares sold 180,078,139
- ----------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 297,006
- ----------------------------------------------------------------------------------------------
Shares redeemed (58,900,363)
- ---------------------------------------------------------------------------------------------- ------------------
Net change resulting from Fund share transactions 121,474,782
- ---------------------------------------------------------------------------------------------- ------------------
</TABLE>
*For the period from December 31, 1993 (date of initial public investment) to
April 30, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
("Adviser"), receives for its services an annual investment advisory fee equal
to .50 of 1% of the Fund's average daily net assets. Adviser may voluntarily
choose to waive its fee and reimburse certain operating expenses of the Fund.
Adviser can modify or terminate this voluntary waiver and reimbursement at any
time at its sole discretion.
ADMINISTRATION FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the fee is based on
the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received during any fiscal year shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a shareholder services agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of average net assets of the Fund for the period. This fee is to obtain
certain personal services for shareholders and the maintenance of shareholder
accounts.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT--Federated Services Company
("FServ") serves as transfer agent and dividend disbursing agent for the Fund.
The fee is based on the size, type and number of accounts and transactions made
by shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses and start-up administrative
service expenses incurred by the Fund will be borne initially by Adviser and are
estimated at $21,879 and $31,507, respectively. The Fund has agreed to reimburse
the Adviser for the organizational expenses and start-up administrative expenses
during the five year period following December 1, 1993 (date the Fund first
became effective).
INTERFUND TRANSACTIONS--During the period ended April 30, 1994, the Fund engaged
in purchase and sale transactions with other Funds advised by the Adviser
pursuant to Rule 17a-7 of the Investment Company Act of 1940 amounting to
$100,104,292 and $51,200,000, respectively. These purchases and sales were
conducted on an arms length basis and transacted for cash consideration only, at
independent current market prices and without brokerage commissions, fees or
other remuneration.
Certain of the Officers and Trustees of the Trust are Officers and Trustees of
the above companies.
May 31, 1994
NORTH CAROLINA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
PROSPECTUS
The shares of North Carolina Municipal Cash Trust (the "Fund") offered by this
prospectus represent interests in a non-diversified portfolio of securities
which is one of a series of investment portfolios in Federated Municipal Trust
(the "Trust"), an open-end management investment company (a mutual fund). The
investment objective of the Fund is to provide current income exempt from
federal regular income tax and the income taxes imposed by the State of North
Carolina consistent with stability of principal. The Fund invests primarily in
short-term North Carolina municipal securities, including securities of states,
territories, and possessions of the United States which are not issued by or on
behalf of North Carolina or its political subdivisions and financing
authorities, but which provide income exempt from the federal regular and North
Carolina state income taxes. In addition, the Fund intends to qualify as an
investment substantially exempt from the North Carolina Intangible Personal
Property tax. Shares of the Fund are sold at net asset value, without a sales
load.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THE 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 Statement of Additional Information dated December 1,
1993, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge by calling 1-800-235-4669. To obtain other information, or make
inquiries about the Fund, contact the Fund at the address listed in the back of
this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 1, 1993
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 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 5
Temporary Investments 5
North Carolina Municipal Securities 5
Standby Commitments 5
North Carolina Investment Risks 6
Non-Diversification 6
Investment Limitations 7
Regulatory Compliance 7
FEDERATED MUNICIPAL TRUST INFORMATION 7
- ------------------------------------------------------
Management of Federated Municipal Trust 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 8
Distribution of Fund Shares 8
Administrative Arrangements 8
Administration of the Fund 9
Administrative Services 9
Custodian 9
Transfer Agent, and
Dividend Disbursing Agent 9
Legal Counsel 9
Independent Public Accountants 9
Expenses of the Fund 9
NET ASSET VALUE 9
- ------------------------------------------------------
INVESTING IN THE FUND 10
- ------------------------------------------------------
Share Purchases 10
By Wire 10
By Mail 10
Minimum Investment Required 10
What Shares Cost 10
Subaccounting Services 11
Certificates and Confirmations 11
Dividends 11
Capital Gains 11
REDEEMING SHARES 11
- ------------------------------------------------------
Telephone Redemption 11
Written Requests 12
Signatures 12
Receiving Payment 12
Redemption Before Purchase
Instruments Clear 12
Accounts with Low Balances 13
SHAREHOLDER INFORMATION 13
- ------------------------------------------------------
Voting Rights 13
Massachusetts Partnership Law 13
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
North Carolina Taxes 14
Other State and Local Taxes 15
PERFORMANCE INFORMATION 15
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................................................................. None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................................................. None
Deferred Sales Loads (as a percentage of original
purchase price or redemption proceeds, as applicable)................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee........................................................................................... None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
<S> <C> <C>
Management Fee (after waiver) (1)...................................................................... 0.27%
12b-1 Fee.............................................................................................. None
Other Expenses......................................................................................... 0.32%
Total Fund Operating Expenses (2)............................................................ 0.59%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.50%.
(2) The Total Fund Operating Expenses are estimated to be 0.82% absent the
anticipated voluntary waiver of a portion of the management fee.
* Total Operating Expenses are estimated based on average expenses expected to
be incurred during the period ending October 31, 1994. During the course of
this period, expenses may be more or less than the average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "INVESTING IN THE FUND" 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
<S> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of each time
period. As noted in the table above, the Fund charges no redemption fees..................... $6 $19
</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. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING OCTOBER 31,
1994.
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.
Shares of the Fund are designed for investment of moneys held by financial
institutions in an agency or fiduciary capacity. A minimum initial investment of
$10,000 over a 90-day period is required. The Fund may not be a suitable
investment for non-North Carolina taxpayers or retirement plans since it invests
primarily in North Carolina municipal securities.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal regular income tax and the income tax imposed by the State of North
Carolina consistent with stability of principal. In addition, the Fund intends
to qualify as an investment substantially exempt from the North Carolina
Intangible Personal Property tax ("intangibles tax"). The investment objective
cannot be changed without approval of shareholders. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than North Carolina.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of North
Carolina municipal securities (as defined below) with remaining maturities of 13
months or less at the time of purchase by the Fund. As a matter of investment
policy, which cannot be changed without approval of shareholders, the Fund
invests so that at least 80% of its annual interest income is exempt from
federal regular and North Carolina state income tax and intangibles tax or so
that at least 80% of its net assets is invested in obligations, the interest
income from which is exempt from federal regular and North Carolina state income
tax and intangibles tax. The average maturity of the securities in the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless
indicated otherwise, the investment policies may be changed by the Board of
Trustees ("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 North Carolina and its political subdivisions
and financing authorities, and obligations of other states, territories and
possessions of the United States, including the District of Columbia, and any
political subdivision or financing authority of any of these, the income from
which is, in the
opinion of qualified legal counsel, exempt from both federal regular income tax
and the income tax and intangibles tax imposed by the State of North Carolina.
Examples of North Carolina municipal securities include, but are not limited to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
municipal securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
municipal interest index or a stated percentage of a prime rate or another
published rate. 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. Also included within the general category of municipal
securities are certain lease obligations or installment purchase contract
obligations and participations therein (hereinafter collectively called
"lease obligations") of municipal authorities or entities. Although lease
obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to budget for, appropriate
and make the payments due under the lease obligation. Interest on lease
obligations is tax-exempt to the same extent as if the municipality had
issued debt obligations to finance the underlying project or puchase.
However, certain lease obligations contain "non-appropriation" clauses
which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated
for such purpose on a yearly basis. In addition to the "non-appropriation"
risk, these securities represent a relatively new type of financing that
has not yet developed the depth of marketability associated with more
conventional bonds and some lease obligations may be illiquid. Although
"non-appropriation"
lease obligations are generally secured by the leased property, disposition
of the property in the event of foreclosure might prove difficult. In
addition, the tax treatment of such obligations in the event of
"non-appropriation" is unclear. The Fund does not invest more than 10% of
its total assets in lease obligations that contain "non-appropriation"
clauses.
If the Fund purchases unrated municipal leases, the Trustees will be
responsible for determining, on an ongoing basis, the credit quality of
such leases and the likelihood that such lease will not be cancelled.
RATINGS. The North Carolina 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.
A description of the ratings categories is contained in the Appendix to the
Statement of Additional Information. See "Regulatory Compliance."
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit enhanced by a guaranty, letter of credit, or insurance. The Fund
typically evaluates the credit quality and ratings of credit enhanced securities
based upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Trustees, certain restricted securities are considered
liquid. To the extent restricted securities are deemed to be illiquid, the Fund
will limit their purchase, together with other securities considered to be
illiquid, including some municipal leases, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase North
Carolina 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, when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term non-North Carolina
municipal tax-exempt obligations or other taxable temporary investments. All
temporary investments will satisfy the same credit quality standards as the
Fund's acceptable investments. See "Ratings" above. Temporary investments
include: notes issued by or on behalf of municipal or corporate issuers;
marketable obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; and repurchase agreements (arrangements in
which the organization sells the Fund a temporary investment and agrees at the
time of sale to repurchase it at a mutually agreed upon time and price).
Although the Fund is permitted to make taxable temporary investments, there is
no current intention of generating income subject to federal regular income tax
or personal income tax imposed by the State of North Carolina.
NORTH CAROLINA MUNICIPAL SECURITIES
North Carolina municipal securities are generally issued to finance public
works, such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They are
also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.
North Carolina municipal securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire sites
or construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.
The two principal classifications of 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 securities prior to maturity,
at the Fund's option, for the amortized cost of the 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.
NORTH CAROLINA INVESTMENT RISKS
Yields on North Carolina municipal securities depend on a variety of factors,
including: the general conditions of the short-term municipal market and of the
municipal bond market; the size and maturity of the particular offering; and the
rating of the issue. Further, any adverse economic conditions or developments
affecting the State of North Carolina or its municipalities could impact the
Fund's portfolio. The ability of the Fund to achieve its investment objective
also depends on the continuing ability of the issuers of North Carolina
municipal securities and demand features for such securities, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. However, North Carolina's substantial resources and
conservative approach to financial operations and debt management provide
superior protection to bondholders. Additionally, recovery from the recession
appears to be underway in the State, with revenues exceeding estimates and
employment increasing slightly.
Investing in North Carolina municipal securities which meet the Fund's quality
standards may not be possible if the State of North Carolina or its
municipalities do not maintain their high quality short-term credit ratings. In
addition, certain North Carolina constitutional amendments, legislative
measures, executive or judicial orders, administrative regulations, and voter
initiatives could result in adverse consequences affecting North Carolina
municipal securities. The Statement of Additional Information contains an
expanded discussion of the current economic risks associated with the purchase
of North Carolina municipal securities.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified portfolio because the higher percentage of investments among fewer
issuers may result in greater fluctuation in the total market value of the
Fund's portfolio. Any economic, political, or regulatory developments affecting
the value of the securities in the Fund's portfolio will have a greater impact
on the total value of the portfolio than would be the case if the portfolio were
diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, with
regard to at least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following investment limitation, however, can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective.
The Fund will not invest more than 5% of its total assets in industrial
development bonds or other municipal securities when the payment of principal
and interest is the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations, including the
operation of any predecessor.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. In particular, the Fund
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF FEDERATED MUNICIPAL TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of
Trustees is responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .50 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for the voluntary waiver of the advisory
fee by the adviser, the adviser may voluntarily waive some or all of the
advisory fee. This does not include reimbursement to the Fund of any
expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The adviser can terminate this voluntary waiver
of expenses at any time at its sole discretion. The adviser has also
undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors is
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969 and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
ADMINISTRATIVE ARRANGEMENTS
The distributor may select brokers and dealers to provide distribution and
administrative services. The distributor may also select administrators
(including depository institutions such as commercial banks and savings and loan
associations) to provide administrative services. These administrative services
include, but are not limited to, distributing prospectuses and other
information, providing accounting assistance and communicating or facilitating
purchases and redemptions of Fund shares.
Brokers, dealers, and administrators will receive fees from the distributor
based upon shares owned by their clients or customers. The fees are calculated
as a percentage of the average aggregate net asset value of shares held by their
clients in the Fund. Any fees paid for these services by the distributor will be
reimbursed by the adviser.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings and loan association) to become an underwriter or
distributor of securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Board of Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary
of Federated Investors, provides the Fund with the administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services, Inc. provides these at approximate cost.
CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Fund.
TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of Trust expenses.
The expenses of the Fund include, but are not limited to, the cost of:
organizing the Trust and continuing its existence; Trustees' fees; investment
advisory and administrative services; printing prospectuses and other Fund
documents for shareholders; registering the Trust, the Fund, and shares of the
Fund; taxes and commissions; issuing, purchasing, repurchasing, and redeeming
shares; fees for custodians, transfer agents, dividend disbursing agents,
shareholder servicing agents, and registrars; printing, mailing, auditing and
certain accounting and legal expenses; reports to shareholders and governmental
agencies; meetings of Trustees and shareholders and proxy solicitations
therefor; insurance premiums; association membership dues; and such
non-recurring and extraordinary items as may arise. However, the Adviser may
voluntarily reimburse the Fund the amount, up to the amount of the advisory fee,
by which operating expenses exceed limitations imposed by certain states.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting total liabilities from total assets 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 THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve Wire System are open for business. Shares may be purchased either by
wire or by mail. The Fund reserves the right to reject any purchase request.
To purchase shares of the Fund, open an account by calling Federated Securities
Corp. Information needed to establish the account will be taken over the
telephone.
Texas residents must purchase shares through Federated Securities Corp. at
1-800-245-2423.
BY WIRE. To purchase shares of the Fund by Federal Reserve wire, call the Fund
before 1:00 p.m. (Eastern time) to place an order. The order is considered
received immediately. Payment by federal funds must be received before 3:00 p.m.
(Eastern time) that same day. Federal funds should be wired as follows: State
Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For
Credit to: North Carolina Municipal Cash Trust; Fund Number (this number can be
found on the
account statement or by contacting the Fund); Group Number or Order Number;
Nominee or Institution Name; 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 of the Fund by mail, send a check made payable to
North Carolina Municipal Cash Trust to the Fund's transfer agent, Federated
Services Company, c/o State Street Bank and Trust Company, P.O. Box 8602,
Boston, Massachusetts 02266-8602. Orders by mail are considered received when
payment by check is converted by State Street Bank into federal funds. This is
normally the next business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $10,000. However, an account may
be opened with a smaller amount as long as the $10,000 minimum is reached within
90 days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund.
Individual accounts established through a bank or broker may be subject to a
different minimum investment requirement.
WHAT SHARES COST
Fund shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
shares of the Fund through a non-affiliated bank or broker may be charged an
additional service fee by that bank or broker.
The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no shares are tendered for redemption and no orders to
purchase shares are received; or (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Financial
institutions holding Fund 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 Fund shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the financial institution with regard to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the day after the check is converted upon
instruction of the transfer agent into federal funds. Dividends are
automatically reinvested on payment dates in additional shares of the Fund
unless cash payments are requested on an application or by contacting the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses,
if any, could result in a decrease in dividends. If, for some extraordinary
reason, the Fund realizes net long-term or short-term capital gains, it will
distribute them at least once every 12 months.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their shares by telephoning the Fund. Redemption
requests received before 12:00 noon (Eastern time) are not entitled to that
day's dividend. A daily dividend will be paid on shares redeemed if the
redemption request is received after 12:00 noon (Eastern time). However, the
proceeds are not wired until the following business day. If, at any time, the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders will be promptly notified.
An authorization form permitting the Fund to accept redemption requests by
telephone must first be completed. Authorization forms and information on this
service are available from Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, shareholders may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as Written Requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name, his account number,
and the share or dollar amount requested. If share certificates have been
issued, they must be properly endorsed and should be sent by registered or
certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record
with the Fund, or a redemption payable other than to the shareholder of
record must have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by
the Bank Insurance Fund ("BIF"), which is administered by the
Federal Deposit Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
a savings bank or savings and loan association whose deposits are
insured by the Savings Association Insurance Fund ("SAIF"), which
is administered by the FDIC; or
any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a
proper written redemption request provided that the transfer agent has
received payment for the shares from the shareholder.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check, the proceeds from the redemption of those
shares are not available until the Fund or its agents are reasonably certain
that the purchase check has cleared, which could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $10,000 due to
shareholder redemptions.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of all series of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for such
acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument that the
Trust or its Trustees enter into or sign.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, 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, up to 28% of alternative minimum taxable income for
individuals and 20% for corporations, applies when it exceeds the regular tax
for the taxable year. Alternative minimum taxable income is equal to the regular
taxable income of the taxpayer increased by certain "tax preference" items not
included in regular taxable income and reduced by only a portion of the
deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's preadjustment alternative minimum taxable income as a tax preference
item. "Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, 75% of the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
NORTH CAROLINA TAXES
North Carolina residents and North Carolina corporations are not required to pay
North Carolina income tax on any dividends received from the Fund that represent
interest on obligations issued by North Carolina and political subdivisions
thereof or upon the obligations of the United States or its possessions.
Dividends representing interest upon the obligations of the United States or its
possessions are to be deducted from federal taxable income in calculating North
Carolina taxable income. Dividends received from the Fund by such shareholders
must be included in North Carolina taxable income to the extent it represents
interest on obligations of states other than North Carolina and their political
subdivisions. Such interest income is included by an adjustment to federal
taxable income in calculating the North Carolina taxable income. The Fund will
annually furnish to its shareholders a statement supporting the proper
allocation.
North Carolina residents and North Carolina corporations may exclude from the
share value of the Fund for the purposes of the North Carolina Intangibles
Personal Property tax that proportion of the total share value which is
attributable to the value of the direct obligations of the state of North
Carolina, of the United States, and of their political subdivisions held in the
Fund as of December 31 of the taxable year. The Fund will annually furnish to
its shareholders a statement supporting the proper allocation.
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from regular state income taxes in
states other than North Carolina or from personal property taxes. State laws
differ on this issue and shareholders are urged to consult their own tax
advisers regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield, effective yield, and
tax-equivalent yield.
The Fund's yield represents the annualized rate of income earned on an
investment in the Fund over a seven-day period. It is the annualized dividends
earned during the period on the investment, shown as a percentage of the
investment. The effective yield is calculated similarly to the yield, but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment. The
tax-equivalent yield of the Fund is calculated similarly to the yield, but is
adjusted to reflect the taxable yield that the the Fund would have had to earn
to equal their actual yield, assuming a specific tax rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in the Fund after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
From time to time, the Fund may advertise its performance using certain
reporting services and/or compare its performance to certain indices.
<TABLE>
<S> <C> <C>
ADDRESSES
- --------------------------------------------------------------------------------
Fund
North Carolina Municipal Cash Trust Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent, and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
NORTH CAROLINA MUNICIPAL
CASH TRUST
PROSPECTUS
A Non-Diversified Portfolio of
Federated Municipal Trust,
An Open-End, Management
Investment Company
December 1, 1993
[LOGO] FEDERATED SECURITIES CORP.
-----------------------------------
Distributor
A Subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3090803A (12/93)
NORTH CAROLINA MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT AND SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 1, 1993
A. Please insert the following information as a second paragraph under the
subsection entitled "Fund Ownership" on page 6:
"As of May 10, 1994, the following shareholders of record owned 5% or more
of the outstanding shares of the Fund: Timothy A. Braswell, Charlotte,
North Carolina, owned approximately 12,049,706 shares (8.5%); Julius Blum
Inc., Stanley, North Carolina owned approximately 7,048,228 shares (5.0%);
Variety Wholesalers, Raleigh, North Carolina, owned approximately
20,824,082 shares (14.8%); Oakwood Homes Corporation, Greensboro, North
Carolina, owned approximately 15,003,515 shares (10.7%); and The CATO
Corporation Charlotte, North Carolina, owned approximately 7,525,030
shares (5.3%)."
B. Please insert the following as the second paragraph under the subsection
entitled "Advisory Fees" on page 7:
From the Fund's date of initial public investment, December 31, 1993, to
April 30, 1994, the Fund's adviser earned $67,811, all of which was
voluntarily waived."
C. Please delete the paragraph under the section entitled "Administrative
Services" on page 7 and replace it with the following:
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. Prior to March 1, 1994, Federated
Administrative Services, Inc., also a subsidiary of Federated Investors,
served as the Fund's administrator. John A. Staley, IV, an officer of the
Trust and Dr. Henry J. Gailliot, an officer of Federated Management, the
adviser to the Fund, each hold approximately 15% and 20%, respectively, of
the outstanding common stock and serve as directors of Commercial Data
Services, Inc., a company which provides computer processing services to
Federated Administrative Services, Inc. and Federated Administrative
Services. From the Fund's date of initial public investment, December 31,
1993, to April 30, 1994, the Fund did not incur any costs for
administrative services.
D. Please insert the following section entitled "Shareholder Services Plan"
after the section entitled "Administrative Services" on page 7. In
addition, please add the heading to the Table of Contents:
SHAREHOLDER SERVICES PLAN
This arrangement permits the payment of fees to Federated Shareholder
Services and, indirectly, to Financial Institutions 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, 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. From the
Fund's date of initial public investment, December 31, 1993, to April 30,
1994, payments in the amount of $5,543 were made pursuant to the
Shareholder Services Plan.
E. Please insert the following information as the first paragraph under the
section entitled "Yield" on page 10:
"The Fund's yield for the seven-day period ended April 30, 1994 was 2.78%.
F. Please insert the following information as the first paragraph under the
section entitled "Effective Yield" on page 10:
"The Fund's effective yield for the seven-day period ended April 30, 1994
was 2.82%.
G. Please insert the following information as the first paragraph under the
section entitled "Tax-Equivalent Yield" on page 10:
"The Fund's tax-equivalent yield for the seven-day period ended April 30,
1994 was 4.28% assuming a 28% tax rate and 4.48% assuming a 31% tax rate."
May 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
-------------------------------------------------------------------------
Distributor
004183-A (5/94)
NORTH CAROLINA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of North Carolina Municipal Cash Trust (the "Fund") dated
December 1, 1993. This Statement is not a prospectus itself. To
receive a copy of any of the prospectus, write or call Federated
Municipal Trust.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 1, 1993
[LOGO] FEDERATED SECURITIES CORP.
-----------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Acceptable Investments 1
When-Issued and Delayed
Delivery Transactions 1
Temporary Investments 2
Investment Limitations 2
North Carolina Investment Risks 3
TRUST MANAGEMENT 4
- ---------------------------------------------------------------
Officers and Trustees 4
Fund Ownership 6
The Funds 6
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 7
- ---------------------------------------------------------------
Adviser to the Fund 7
Advisory Fees 7
ADMINISTRATIVE SERVICES 7
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 7
- ---------------------------------------------------------------
PURCHASING SHARES 8
- ---------------------------------------------------------------
Conversion to Federal Funds 8
DETERMINING NET ASSET VALUE 8
- ---------------------------------------------------------------
Use of Amortized Cost Method 8
REDEEMING SHARES 9
- ---------------------------------------------------------------
Redemption in Kind 9
TAX STATUS 9
- ---------------------------------------------------------------
The Fund's Tax Status 9
YIELD 10
- ---------------------------------------------------------------
EFFECTIVE YIELD 10
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 10
- ---------------------------------------------------------------
Tax-Equivalency Table 10
PERFORMANCE COMPARISONS 11
- ---------------------------------------------------------------
APPENDIX 12
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was
established as a Massachusetts business trust under a Declaration of Trust dated
September 1, 1989.
INVESTMENT OBJECTIVE AND POLICIES
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The Fund's investment objective is to provide current income exempt from federal
regular income tax and the income tax imposed by the State of North Carolina
consistent with stability of principal. In addition, the Fund intends to qualify
as an investment substantially exempt from the North Carolina Intangible
Personal Property tax. The investment objective cannot be changed without
approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of the
State of North Carolina and of other states, territories and possessions of the
United States, including the District of Columbia, and any political subdivision
or financing authority of any of these, the income from which is, in the opinion
of qualified legal counsel, exempt from both federal regular income tax and the
income taxes imposed by the State of North Carolina.
When determining whether a North Carolina municipal security presents minimal
credit risks, the investment adviser considers the creditworthiness of the
issuer of the security, the issuer of a demand feature if the Fund has the
unconditional right to demand payment for the security, or the guarantor of
payment by either of those issuers.
If a security loses its rating or the security's rating is reduced below the
required minimum after the Fund purchased it, the Fund is not required to sell
the security. The investment adviser considers this event, however, in its
determination of whether the Fund should continue to hold the security in its
portfolio. If ratings made by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") change because of changes in those
organizations or in their rating systems, the Fund will try to use comparable
ratings as standards in accordance with the investment policies described in the
Fund's prospectus.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests which represent undivided proportional interests in lease
payments by a governmental or non-profit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that
the participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they became
due. In the event of a default or failure of appropriation, unless the
participation interests are credit enhanced, it is unlikely that the
participants would be able to obtain an acceptable substitute source of
payment.
Under the criteria currently established by the Board of Trustees
("Trustees"), the Fund's investment adviser must consider the following
factors in determining the liquidity of municipal lease securities: (1)
the frequency of trades and quotes for the security; (2) the volatility
of quotations and trade prices for the security; (3) the number of
dealers willing to purchase or sell the security and the number of
potential purchasers; (4) dealer undertakings to make a market in the
security; (5) the nature of the security and the nature of the
marketplace trades; (6) the rating of the security and the financial
condition and prospects of the issuer of the security; and (7) such other
factors as may be relevant to the Fund's ability to dispose of the
security. In the case of a municipal lease security, the adviser must
also consider the following additional factors: (a) whether the lease can
be terminated by the lessee; (b) the potential recovery, if any, from a
sale of the leased property upon termination of the lease; (c) the
lessee's general credit strength; (d) the likelihood that the lessee will
discontinue appropriating funding for the leased property because the
property is no longer deemed essential to its operations; and (e) any
credit enhancement or legal recourse provided upon an event of
nonappropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated 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 total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in high quality temporary investments during times of
unusual market conditions for defensive purposes and to maintain liquidity.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers and
other recognized financial institutions sell U.S. government securities
or other securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price within one year
from the date of acquisition. The Fund or its custodian will take
possession of the securities subject to repurchase agreements and these
securities will be marked to market daily. To the extent that the
original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities. In the event that a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be
delayed pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such
as broker/dealers, which are deemed by the Fund's investment adviser to
be creditworthy pursuant to guidelines established by the Trustees.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess of 5% of
its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of its total assets at the time of the pledge.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire
publicly or nonpublicly issued North Carolina municipal securities or
temporary investments or enter into repurchase agreements, in accordance
with its investment objective, policies, limitations, and its Declaration
of Trust.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of
the value of its assets in cash or cash items (the Fund considers cash
items to be instruments issued by a U.S. branch of a domestic bank or
savings and loan having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment), securities issued or
guaranteed by the U.S. government, its agencies, or instrumentalities, or
instruments secured by these money market instruments, such as repurchase
agreements.
The above investment limitations cannot be changed without shareholder approval.
The following investment limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
RESTRICTED SECURITIES
The Fund will not invest more than 10% of its total assets in securities
subject to restrictions on resale under the Securities Act of 1933 except
for certain restricted securities which meet the criteria for liquidity
as established by the Trustees.
ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
securities which are illiquid, including repurchase agreements providing
for settlement in more than seven days after notice, certain restricted
securities not determined by the Trustees to be liquid, and
non-negotiable fixed time deposits with maturities over seven days.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies,
except as part of a merger, consolidation, reorganization, or other
acquisition.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
industrial development bonds or other municipal securities where the
principal and interest is the responsibility of companies (or guarantors,
where applicable) with less than three years of continuous operations,
including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or its investment adviser, owning
individually more than 1/2 of 1% of the issuer's securities, together own
more than 5% of the issuer's securities.
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs, or leases.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its net assets during the coming fiscal year.
In order to comply with certain state restrictions, the Fund will not invest in
real estate limited partnerships or oil, gas or other mineral leases.
NORTH CAROLINA INVESTMENT RISKS
The State of North Carolina's credit strength is derived from a diversified
economy, relatively low unemploy-
ment rates, strong financial management, and a low debt burden. In recent years,
the State's economy has become
less dependent on agriculture (primarily tobacco) and manufacturing (textiles
and furniture) and has experienced
increased activity in financial services, research, high technology
manufacturing, and tourism. North Carolina did not escape the effects of the
economic slowdown; however, the State is now experiencing an increase in
economic
development. Long-term personal income trends indicate gains; however, wealth
levels still continue to lag the national average. State unemployment rates
consistently fall below the national level. For August, 1993, North Carolina
reported an unemployment rate of 4.6 percent versus the national average of 6.7
percent.
North Carolina is a very conservative debt issuer and has maintained debt levels
that are low due to constitutional debt limitations. Conservative policies also
dominate the State's financial operations. The State's administration
continually demonstrates its ability and willingness to adjust financial
planning and budgeting to preserve financial balance. The State's finances,
which enjoyed surpluses and adequate reserves throughout the 1980's, began
reflecting the economic downturn in fiscal 1990. To close the shortfalls that
emerged because of weakening revenues, the State increased its sales and
corporate tax rates and implemented expenditure reductions and restrictions.
Management's actions resulted in a budget surplus for fiscal 1992. For fiscal
1993, which ended June 30, another budgetary surplus is anticipated. The
financials of many North Carolina municipalities are also strong, and over 25
percent of all Aaa-rated tax-exempt bonds issued by local municipalities
throughout the country are issued by cities and towns located in the State.
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, its counties, and its
municipalities.
TRUST MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Management,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, Inc., and the Funds (as defined below).
<TABLE>
<CAPTION>
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, AEtna Life and Casualty Company; Chief Executive Officer and
Director, Trustee, or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company. Mr. Donahue is the father
of
J. Christopher Donahue, Vice President of the Trust.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President,
Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate
Department Village Development Corporation; General Partner or Trustee in private
John R. Wood and real estate ventures in Southwest Florida; Director, Trustee, or
Associates, Inc., Realtors Managing General Partner of the Funds; formerly, President, Naples
3255 Tamiami Trail North Property Management, Inc.
Naples, FL
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
PNC Plaza Director, Trustee, or Managing General Partner of the Funds; formerly,
23rd Floor Vice Chairman and Director, PNC Bank, N.A. and PNC Bank Corp. and
Pittsburgh, PA Director, Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director,
Concord, MA Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Glen R. Johnson* President and Trustee, Federated Investors; President and/or Trustee of some of the
Federated Investors Tower Trustee Funds; staff member, Federated Securities Corp. and Federated
Pittsburgh, PA Administrative Services, Inc.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly,
Boston, MA President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Learning Endowment for International Peace, OnLine Computer Library Center, Inc.,
University of Pittsburgh RAND Corporation, and U.S. Space Foundation; Chairman, Czecho Slovak
Pittsburgh, PA Management Center; Director, Trustee or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Tower Federated Management, and Federated Research; President and Director,
Pittsburgh, PA Federated Administrative Services, Inc.; Trustee, Federated Services
Company; President or Vice President of the Funds; Director, Trustee or
Managing General Partner of some of the Funds. Mr. Donahue is the son of
John F. Donahue, Chairman and Trustee of the Trust.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director, Federated Securities Corp.; President or Vice President of the
Pittsburgh, PA Funds; Director or Trustee of some of the Funds.
Edward C. Gonzales Vice President Vice President, Treasurer and Trustee, Federated Investors; Vice
Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Trustee, Federated Services Company; Executive Vice
President, Treasurer, and Director, Federated Securities Corp.;
Chairman, Treasurer, and Director, Federated Administrative Services,
Inc.; Trustee or Director of some of the Funds; Vice President and
Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors Tower and Secretary Investors; Vice President, Secretary and Trustee, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary, and Director,
Federated Administrative Services, Inc.; Director and Executive Vice
President, Federated Securities Corp.; Vice President and Secretary of
the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Vice President
of the Funds; Director, Trustee, or Managing General Partner of some of
the Funds; formerly, Vice President, The Standard Fire Insurance Compa-
ny and President of its Federated Research Division.
</TABLE>
*This Trustee is deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940, as amended.
\Member of the Trust's Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Trustees between meetings of
the Trustees.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series, Inc.; Cash Trust
Series II; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
FT Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated
GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High
Yield Trust; Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Intermediate Government Trust; Federated
Intermediate Municipal Trust; Federated Master Trust; Federated Municipal Trust;
Federated Short-Intermediate Government Trust; Federated Short-Intermediate
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility
Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income
Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust,
Inc.--1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
New York Municipal Cash Trust; 111 Corcoran Funds; The Planters Funds; Portage
Funds; RIMCO Monument Funds; The Shawmut Funds; Signet Select Funds; Star Funds;
The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Targeted
Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government Securities; and
Trust for U.S. Treasury Obligations.
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. Federated Management is a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are
John F. Donahue, his wife, and his son, J. Christopher Donahue. John F. Donahue
is Chairman and Trustee, Federated Management; Chairman and Trustee, Federated
Investors; and Chairman and Trustee of the Trust. John A. Staley, IV, is
President and Trustee, Federated Management; Vice President and Trustee,
Federated Investors; Executive Vice President, Federated Securities Corp.; and
Vice President of the Trust. J. Christopher Donahue is Trustee, Federated
Management; President and Trustee, Federated Investors; President and Director,
Federated Administrative Services, Inc.; and Vice President of the Trust. John
W. McGonigle is Vice President, Secretary, and Trustee, Federated Management;
Vice President, Secretary, General Counsel, and Trustee, Federated Investors;
Executive Vice President, Secretary and Director, Federated Administrative
Services, Inc.; Executive Vice President and Director, Federated Securities
Corp; and Vice President and Secretary of the Trust.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
These arrangements are not part of the advisory contract and have been
established only to comply with applicable state authorities. They may be
amended or rescinded in the future.
ADMINISTRATIVE SERVICES
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Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund at approximate cost.
John A. Staley, IV, an officer of the Trust, and Dr. Henry J. Gailliot, an
officer of Federated Management, the adviser to the Fund, hold approximately 15%
and 20%, respectively, of the outstanding common stock and serve as directors of
Commercial Data Services, Inc., a company which provides computer processing
services to Federated Administrative Services, Inc. For the fiscal years ended
October 31, 1992, 1991 and 1990, Federated Administrative Services, Inc. paid
approximately $189,741, $187,677 and $174,794, respectively, for services
provided by Commercial Data Services, Inc.
BROKERAGE TRANSACTIONS
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When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the investment adviser will generally use those
who are recognized dealers in specific portfolio instruments, except when a
better price and execution of the order can be obtained elsewhere. The adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising other accounts. To the extent that
receipt of these services may supplant services for which the adviser or its
affiliates might otherwise have paid, it would tend to reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve Wire System are open for business.
The procedure for purchasing shares is explained in the prospectus under
"Investing in the Fund."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. 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. Net
asset value will not be calculated on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
USE OF AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7, as amended (the
"Rule"), promulgated by the Securities and Exchange Commission under the
Investment Company Act of 1940. Under the Rule, the Trustees must establish
procedures reasonably designed to stabilize the net asset value per share, as
computed for purposes of distribution and redemption, at $1.00, taking into
account current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party (1) on no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
Although demand features and standby commitments are techniques and are defined
as "puts" under the Rule, the Fund does not consider them to be "puts" as that
term is used in the Fund's investment limitations. Demand features and standby
commitments are features which enhance an instrument's liquidity, and the
investment limitation which proscribes puts is designed to prohibit the purchase
and sale of put and call options and is not designed to prohibit the Fund from
using techniques which enhance the liquidity of portfolio instruments.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.5% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risk and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than 397 days can be
purchased by the
Fund. For the treatment of Variable Rate Municipal Securities with demand
features, refer to "Variable Rate Demand Notes" in the prospectus.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares of
the Fund, computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above, may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although State Street Bank does not charge
for telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To the extent available,
such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Fund
must, among other requirements:
derive at least 90% of its gross income from dividends, interest, and gains
from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
YIELD
- --------------------------------------------------------------------------------
The Fund calculates its yield based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by:
determining the net change in the value of a hypothetical account with a
balance
of one share at the beginning of the base period, with the net change excluding
capital changes but including the value of any additional shares purchased with
dividends earned from the original one share and (on funds that pay dividends
daily) all dividends declared on the original and any purchased shares;
dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Fund's effective yield is computed by compounding the unannualized base
period return by:
adding 1 to the base period return;
raising the sum to the 365/7th power; and
subtracting 1 from the result.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The Fund's tax-equivalent yield is calculated similarly to the yield, but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal
rate for individuals) assuming that income earned is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Fund's
portfolio generally remains free from federal regular income tax,* and is
often free from state and local taxes as well. As the table below
indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between tax-free and taxable
yields.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1993
STATE OF NORTH CAROLINA
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Tax Bracket:
Federal 15.00% 28.00% 31.00% 31.00% 36.00% 39.60%
Combined
Federal
and State 22.00% 35.00% 38.00% 38.75% 43.75% 47.35%
- --------------------------------------------------------------------------------------------
Joint $1- $36,901- $89,151- $100,001- $140,001- Over
Return: 36,900 89,150 100,000 140,000 250,000 $250,000
Single $1- $22,101- $53,501- $60,001- $115,001- Over
Return: 22,100 53,500 60,000 115,000 250,000 $250,000
- --------------------------------------------------------------------------------------------
<CAPTION>
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
2.00% 2.56% 3.03% 3.23% 3.27% 3.56% 3.80%
2.50 3.21 3.85 4.03 4.08 4.44 4.75
3.00 3.85 4.62 4.84 4.90 5.33 5.70
3.50 4.49 5.38 5.65 5.71 6.22 6.65
4.00 5.13 6.15 6.45 6.53 7.11 7.60
4.50 5.77 6.92 7.26 7.35 8.00 8.55
5.00 6.41 7.69 8.06 8.16 8.89 9.50
5.50 7.05 8.46 8.87 8.98 9.78 10.45
6.00 7.69 9.23 9.68 9.80 10.67 11.40
6.50 8.33 10.00 10.48 10.61 11.56 12.35
7.00 8.97 10.77 11.29 11.43 12.44 13.30
7.50 9.62 11.54 12.10 12.24 13.33 14.25
8.00 10.26 12.31 12.90 13.06 14.22 15.19
</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. It is not an indicator of
past or future performance of the Fund.
*Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local regular or alternative minimum taxes.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of the Fund depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates on money market instruments;
changes in the Fund's expenses; and
the relative amount of Fund cash flow.
From time to time, the Fund may advertise its performance compared to similar
funds or portfolios using certain indices, reporting services, and financial
publications. They 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 "tax-exempt
money market fund" category in advertising and sales literature.
MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk adjusted
returns. The maximum rating is five stars and ratings are effective for two
weeks.
Investors may use such an index in addition to the prospectus of the Fund to
obtain a more complete view of the performance of the Fund before investing. Of
course, when comparing performance of the Fund to any index, factors such as
composition of the index and prevailing market conditions should be considered
in assessing the significance of such comparisons. When comparing funds using
reporting services, or total return and yield, investors should take into
consideration any relevant differences in funds such as permitted portfolio
composition and methods used to value portfolio securities and compute offering
price.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on the monthly reinvestment of dividends over a specified period of
time.
APPENDIX
- --------------------------------------------------------------------------------
MUNICIPAL BOND RATING DEFINITIONS
STANDARD AND POOR'S CORPORATION
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC--Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
outweighed by large uncertainties of major risk exposure to adverse conditions.
C--The rating C is reserved for income bonds on which no interest is being paid.
D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characterstics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
STANDARD AND POOR'S CORPORATION
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC.
Moody's short-term ratings are designated Moody's Investment Grade (MIG or VMIG
(see below)). The purpose of the MIG or VMIG rating is to provide investors with
a simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS)
AND
TENDER OPTION BONDS (TOBS)
RATINGS
STANDARD AND POOR'S CORPORATION
Standard & Poor's assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The
definitions for the short-term ratings are provided below).
MOODY'S INVESTORS SERVICE, INC.
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity.
In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the
first representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the second representing an evaluation of
the degree of risk associated with the demand feature. The VMIG rating can be
assigned a 1 or 2 designation using the same definitions described above for the
MIG rating.
COMMERCIAL PAPER (CP) RATINGS
STANDARD AND POOR'S CORPORATION
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."
MOODY'S INVESTORS SERVICE, INC.
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
The following is an explanation of the Fitch ratings. These ratings are not
referenced in the Portfolio of Investments.
FITCH 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.
FITCH 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.
NR indicates that both the bonds and the obligor or credit enhancer are
currently rated by Standard and Poor's Corporation or Moody's Investors Service,
Inc. with respect to short term indebtedness. However, management considers them
to be of comparable quality to securities rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
"AAA" by Standard and Poor's Corporation or "Aaa" by Moody's Investors
Service, Inc.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
"AA" by Standard and Poor's Corporation or "Aa" by Moody's Investors
Service, Inc.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated
"A" by Standard and Poor's Corporation or Moody's Investors Service, Inc.
3090803B (12/93)
