PENNSYLVANIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Pennsylvania Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a non-diversified portfolio
of Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund). The investment objective of the Fund is to provide
current income exempt from federal regular income tax and the personal income
taxes imposed by the Commonwealth of Pennsylvania consistent with stability of
principal. The Fund invests primarily in short-term Pennsylvania municipal
securities, including securities of states, territories, and possessions of the
United States which are not issued by or on behalf of Pennsylvania or its
political subdivisions and financing authorities, but which provide income
exempt from the federal regular and Pennsylvania state income taxes.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE
FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE;
THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information dated
July 18, 1995, with the Securities and Exchange Commission. The information
contained in the Combined Statement of Additional Information is incorporated
by reference into this prospectus. You may request a copy of the Combined
Statement of Additional Information, which is in paper form only, or a
paper copy of this prospectus, if you have received it electronically, free
of charge by calling 1-800-235-4669. To obtain other information, or make
inquiries about the Fund, contact the Fund at the address listed in the
back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Prospectus dated July 18, 1995
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TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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GENERAL INFORMATION 2
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INVESTMENT INFORMATION 2
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Investment Objective 2
Investment Policies 2
Pennsylvania Municipal Securities 5
Investment Risks 6
Non-Diversification 6
Investment Limitations 6
Regulatory Compliance 7
TRUST INFORMATION 7
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Management of the Trust 7
Distribution of Institutional Shares 8
Administration of the Fund 9
Expenses of the Fund 9
NET ASSET VALUE 10
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INVESTING IN THE FUND 10
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Share Purchases 10
Minimum Investment Required 11
Subaccounting Services 11
Certificates and Confirmations 11
Dividends 11
Capital Gains 11
REDEEMING SHARES 11
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By Mail 12
Telephone Redemption 12
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 13
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Voting Rights 13
Massachusetts Partnership Law 13
TAX INFORMATION 13
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Federal Income Tax 13
State and Local Taxes 14
PERFORMANCE INFORMATION 14
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OTHER CLASSES OF SHARES 15
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ADDRESSES Inside Back Cover
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SUMMARY OF FUND EXPENSES
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INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................ None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)................. None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as
applicable).......................................................................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee........................................................................................... None
ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver) (1)...................................................................... 0.29%
12b-1 Fee.............................................................................................. None
Total Other Expenses................................................................................... 0.16%
Shareholder Services Fee (after waiver)(2)................................................. 0.00%
Total Institutional Shares Operating Expenses (3)............................................. 0.45%
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(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 maximum shareholder services fee is 0.25%.
(3) The Total Institutional Shares Operating Expenses are estimated to be 0.91%
absent the anticipated voluntary waivers of a portion of the management fee
and the shareholder services fee.
*Total Institutional Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending October 31, 1995.
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 Institutional Shares of the
Fund will bear, either directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Investing in Institutional Shares" and
"Federated Municipal Trust Information." Wire-transferred redemptions of less
than $5,000 may be subject to additional fees.
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EXAMPLE 1 year 3 years
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You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period................................................. $5 $14
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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 INSTITUTIONAL SHARES CLASS FISCAL
YEAR ENDING OCTOBER 31, 1995.
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios
of securities. The shares in any one portfolio may be offered in separate
classes. With respect to the Fund, as of the date of this prospectus, the
Trustees have established three classes of shares known as Institutional
Shares, Cash Series Shares and Institutional Service Shares. This prospectus
relates only to Institutional Shares of the Fund, which are designed
primarily for financial institutions acting in a fiduciary or agency
capacity as a convenient means of accumulating an interest in a
professionally managed, non-diversified portfolio investing primarily in
short-term Pennsylvania municipal securities. The Fund may not be a
suitable investment for retirement plans or for non-Pennsylvania taxpayers
because it invests in municipal securities of that state. A minimum
initial investment of $25,000 within a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the Commonwealth of
Pennsylvania consistent with stability of principal. This investment objective
cannot be changed without shareholder approval. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
Pennsylvania municipal securities (as defined below) maturing in 13 months or
less. As a matter of investment policy, which cannot be changed without
shareholder approval, at least 80% of the Fund's annual interest income will be
exempt from federal regular income tax and the personal income taxes imposed by
the Commonwealth of Pennsylvania. (Federal regular income tax does not include
the federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.) The average maturity of the securities in the
Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less.
Unless indicated otherwise, the investment policies may be changed by the
Trustees without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued
by or on behalf of Pennsylvania and its political subdivisions and financing
authorities, and obligations of other states, territories, and possessions of
the United States, including the District of Columbia, and any political
subdivision or financing authority of any of these, the income from which is,
in the opinion of qualified legal counsel, exempt from federal regular income
tax and Pennsylvania state income tax imposed upon non-corporate taxpayers
("Pennsylvania Municipal Securities"). Examples of Pennsylvania Municipal
Securities include, but are not limited to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt
instruments that have variable or floating interest rates and provide the Fund
with the right to tender the security for repurchase at its stated principal
amount plus accrued interest. Such securities typically bear interest at a rate
that is intended to cause the securities to trade at par. The interest rate may
float or be adjusted at regular intervals (ranging from daily to annually), and
is normally based on a published interest rate or interest rate index. Most
variable rate demand notes allow the Fund to demand the repurchase of the
security on not more than seven days prior notice. Other notes only permit the
Fund to tender the security at the time of each interest rate adjustment or at
other fixed intervals. See "Demand Features." The Fund treats variable rate
demand notes as maturing on the later of the date of the next interest rate
adjustment or the date on which the Fund may next tender the security for
repurchase.
PARTICIPATION INTERESTS. The Fund may purchase interests in Pennsylvania
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 Pennsylvania Municipal Securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities. They may take the form of a lease, an installment purchase
contract, a conditional sales contract, or a participation interest in any
of the above.
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments
by a governmental or nonprofit entity. The lease payments and other rights
under the lease provide for and secure payments on the certificates. Lease
obligations may 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.
RATINGS. The securities in which the Fund invests must be rated in one of the
two highest short-term rating categories by one or more nationally recognized
statistical rating organizations ("NRSROs") or be of comparable quality to
securities having such ratings. An NRSRO's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group
("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or
FIN-1+, FIN-1, FIN-2 by Fitch Investors Service, Inc. ("Fitch") are all
considered rated in one of the two highest short-term rating categories. The
Fund will follow applicable regulations in determining whether a security rated
by more than one NRSRO can be treated as being in one of the two highest
short-term rating categories; currently, such securities must be rated by two
NRSROs in one of their two highest rating categories. See "Regulatory
Compliance."
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit
enhanced by a guaranty, letter of credit, or insurance. The Fund typically
evaluates the credit quality and ratings of credit-enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise credit
enhanced by the credit enhancer, in which case the securities will be
treated as having been issued by both the issuer and the credit enhancer.
The bankruptcy, receivership, or default of the credit enhancer will
adversely affect the quality and marketability of the underlying security.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership, or default by the issuer of the
demand feature, or a default on the underlying security or other event that
terminates the demand feature before its exercise, will adversely affect
the liquidity of the underlying security. Demand features that are
exercisable even after a payment default on the underlying security may be
treated as a form of credit enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued or delayed delivery basis. These transactions
are arrangements in which the Fund purchases securities with payment and
delivery scheduled for a future time. The seller's failure to complete
these transactions may cause the Fund to miss a price or yield considered
to be advantageous. Settlement dates may be a month or more after entering
into these transactions, and the market values of the securities purchased
may vary from the purchase prices. Accordingly, the Fund may pay more or
less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
RESTRICTED SECURITIES. As a matter of fundamental policy, the Fund may invest
in restricted securities. Restricted securities are any securities in which the
Fund may invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities laws. Under criteria
established by the Trustees, certain restricted securities are determined to be
liquid. To the extent that restricted securities are not determined to be
liquid, the Fund will limit their purchase to 10% of its net assets.
TEMPORARY INVESTMENTS. From time to time, when the investment adviser
determines that market conditions call for a temporary defensive posture, the
Fund may invest in tax-exempt or taxable securities such as: obligations issued
by or on behalf of municipal or corporate issuers; obligations issued or
guaranteed by the U.S. government, its agencies, or instrumentalities;
instruments issued by a U.S. branch of a domestic bank or other deposit
institution having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment; and repurchase agreements (arrangements
in which the organization selling the Fund a temporary investment agrees at the
time of sale to repurchase it at a mutually agreed upon time and price), all
having the same quality characteristics as described above.
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Pennsylvania
Municipal Securities is subject to the federal alternative minimum tax.
PENNSYLVANIA MUNICIPAL SECURITIES
Pennsylvania Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Pennsylvania Municipal Securities include industrial development bonds
issued by or on behalf of public authorities to provide financing aid to
acquire sites or construct and equip facilities for privately or publicly
owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of Pennsylvania Municipal Securities are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue bonds,
however, are payable only from the revenue generated by the facility
financed by the bond or other specified sources of revenue. Revenue bonds
do not represent a pledge of credit or create any debt of or charge against
the general revenues of a municipality or public authority. Industrial
development bonds are typically classified as revenue bonds.
INVESTMENT RISKS
Yields on Pennsylvania Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market
and of the municipal bond market; the size of the particular offering; the
maturity of the obligations; and the rating of the issue. The ability of
the Fund to achieve its investment objective also depends on the continuing
ability of the issuers of Pennsylvania Municipal Securities and
participation interests, or the credit enhancers of either, to meet their
obligations for the payment of interest and principal when due. In addition,
from time to time, the supply of Pennsylvania Municipal Securities
acceptable for purchase by the Fund could become limited.
The Fund may invest in Pennsylvania Municipal Securities which are
repayable out of revenue streams generated from economically related
projects or facilities and/or whose issuers are located in the same state.
Sizable investments in these Pennsylvania Municipal Securities could
involve an increased risk to the Fund should any of these related projects
or facilities experience financial difficulties.
Obligations of issuers of Pennsylvania Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the
possibility that, as a result of litigation or other conditions, the power
or ability of any issuer to pay, when due, the principal of and interest
on its municipal securities may be materially affected.
NON-DIVERSIFICATION
The Fund is non-diversified. An investment in the Fund, therefore, will entail
greater risk than would exist if it were diversified because the higher
percentage of investments among fewer issuers may result in greater fluctuation
in the total market value of the Fund's portfolio. Any economic, political, or
regulatory developments affecting the value of the securities in the Fund's
portfolio will have a greater impact on the total value of the portfolio than
would be the case if the portfolio were diversified among more issuers.
However, the Fund intends to comply with Subchapter M of the Internal Revenue
Code. This undertaking requires that, at the end of each quarter of each
taxable year, with regard to at least 50% of the Fund's total assets, no
more than 5% of its total assets are invested in the securities of a single
issuer and that with respect to the remainder of the Fund's total assets,
no more than 25% of its total assets are invested in the securities of a
single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 15% of the value of total assets to secure such
borrowings.
The Fund will invest in securities for income earnings rather than trading for
profit. The Fund will not vary its investments, except to: (i) eliminate unsafe
investments and investments not consistent with the preservation of the capital
or the tax status of the investments of the Fund; (ii) honor redemption orders,
meet anticipated redemption requirements, and negate gains from discount
purchases; (iii) maintain a constant net asset value per unit pursuant to, and
in compliance with, an order or rule of the United States Securities and
Exchange Commission; (iv) reinvest the earnings from securities in like
securities; or (v) defray normal administrative expenses (the "Pennsylvania
Investment Restrictions.")
The above investment limitations cannot be changed without shareholder
approval.
As a matter of nonfundamental policy, the Fund will not invest more than 10% of
its net assets in illiquid securities.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Combined Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. In
particular, the Fund will comply with the various requirements of Rule
2a-7, which regulates money market mutual funds. The Fund will determine
the effective maturity of its investments, as well as its ability to
consider a security as having received the requisite short-term ratings by
NRSROs, according to Rule 2a-7. The Fund may change these operational
policies to reflect changes in the laws and regulations without the
approval of its shareholders.
TRUST INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Fund's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. An Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Management, the Fund's investment adviser, subject to direction by the
Trustees. The adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase and sale of
portfolio instruments.
Both the Trust and the Adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio securities.
These codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Board of Trustees,
and could result in severe penalties.
ADVISORY FEES. The adviser receives an annual investment advisory fee
equal to.50 of 1% of the Fund's average daily net assets. The adviser has
undertaken to reimburse the Fund up to the amount of the advisory fee for
operating expenses in excess of limitations established by certain states.
The adviser also may voluntarily choose to waive a portion of its fee or
reimburse other expenses of the Fund, but reserves the right to terminate
such waiver or reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated
Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors
serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $72 billion invested across
more than 260 funds under management and/or administration by its
subsidiaries, as of December 31, 1994, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,750 employees, Federated continues to be led by the management
who founded the company in 1955. Federated funds are presently at work
in and through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional
Shares of the Fund. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to 0.25 of 1% of the
average daily net asset value of Fortress Shares, computed at an annual rate,
to obtain certain personal services for shareholders and the maintenance of
shareholder accounts ("shareholder services"). Under the Shareholder Services
Agreement, Federated Shareholder Services will either perform shareholder
services directly or will select financial institutions to perform shareholder
services. Financial institutions will receive fees based upon shares owned by
their clients or customers. The schedules of such fees and the basis upon which
such fees will be paid will be determined from time to time by the Fund and
Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor may pay
financial institutions such as banks, fiduciaries, custodians for public funds,
investment advisers, and broker/dealers to provide certain services to
shareholders. These services may include, but are not limited to, distributing
prospectuses and other information, providing accounting assistance, and
communicating or facilitating purchases and redemptions of shares. Any fees
paid for these services by the distributor will be reimbursed by the adviser
or its affiliates and not the Fund.
GLASS-STEAGALL ACT. The Glass-Steagall Act prohibits a depository institution
(such as a commercial bank or a savings and loan association) from being an
underwriter or distributor of most securities. In the event the Glass-Steagall
Act is deemed to prohibit depository institutions from acting in the
administrative capacities described above or should Congress relax current
restrictions on depository institutions, the Trustees will consider appropriate
changes in the administrative services. State securities laws governing the
ability of depository institutions to act as underwriters or distributors of
securities may differ from interpretations given to the Glass-Steagall Act and,
therefore, banks and financial institutions may be required to register as
dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate as specified
below:
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MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
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.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
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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. Average
aggregate daily net assets include those of all mutual funds advised by
affiliates of Federated Investors. Federated Administrative Services may choose
voluntarily to waive a portion of its fee.
CUSTODIAN. State Street Bank and Trust Company, Boston, MA, is custodian for
the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Boston, MA, is transfer agent for the shares of, and dividend
disbursing agent for, the Fund. Federated Services Company is a subsidiary of
Federated Investors.
INDEPENDENT PUBLIC ACCOUNTANTS. The Independent Public Accountants for the
Fund are Arthur Andersen LLP, Pittsburgh, PA.
EXPENSES OF THE FUND
Holders of Institutional Shares, Institutional Service Shares and Cash Series
Shares pay their allocable portion of Trust and portfolio expenses.
The Trust expenses for which holders of Institutional Shares, Institutional
Service Shares and Cash Series Shares pay their allocable portion include, but
are not limited to: the cost of organizing the Trust and continuing its
existence; registering the Trust with federal and state securities authorities;
Trustees' fees; auditors' fees, the cost of meetings of Directors; legal fees of
the Trustees; association membership dues; and such non-recurring and
extraordinary items as may arise from time to time.
The portfolio expenses for which holders of Institutional Shares, Institutional
Service Shares and Cash Series Shares pay their allocable portion include, but
are not limited to: registering the portfolio and shares of the portfolio;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise from time to time.
At present, the only expenses which are allocated specifically to classes are
expenses under the Trust's distribution plan on behalf of Cash Series Shares and
fees for shareholder services for Institutional Shares, Institutional Service
Shares and Cash Series Shares. However, the Trustees reserve the right to
allocate certain other expenses to holders of Institutional Shares,
Institutional Service Shares and Cash Series Shares as they deem appropriate
("Class Expenses"). In any case, Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer agent as
attributable to holders of Institutional Shares, Institutional Service Shares
and Cash Series Shares; fees for Shareholder Services; printing and posting
expenses related to preparing and distributing materials such as shareholder
reports, prospectuses and proxies to current shareholders; registration fees
paid to the Securities and Exchange Commission and to state securities systems;
expenses related to administrative personnel and services as required to support
holders of Institutional Shares, Institutional Service Shares and Cash Series
Shares; and Trustee's fees incurred as a result of issues related solely to
Institutional Shares, Institutional Service Shares and Cash Series Shares.
NET ASSET VALUE
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The Fund attempts to stabilize the net asset value of Institutional Shares at
$1.00 by valuing the portfolio securities using the amortized cost method. The
net asset value per share is determined by subtracting liabilities attributable
to Institutional Shares from the value of Fund assets attributable to
Institutional Shares, and dividing the remainder by the number of Institutional
Shares outstanding. The Fund cannot guarantee that its net asset value will
always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
INVESTING IN THE FUND
- ----------------------------------------------------------------------
SHARE PURCHASES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange and the Federal Reserve Wire System are open for business. Shares may
be purchased either by wire or mail. The Fund reserves the right to reject any
purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone.
BY WIRE. To purchase by Federal Reserve wire, call the Fund before 1:00 p.m.
(Eastern time) to place an order. The order is considered received immediately.
Payment by federal funds must be received before 3:00 p.m. (Eastern time) that
day. Federal funds should be wired as follows: Federated Services Company, c/o
State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For
Credit to: Pennsylvania Municipal Cash Trust-Institutional Shares; Fund Number
(this number can be found on the account statement or by contacting the Fund);
Group Number or Dealer Number; Order Number; Nominee or Institution Name; and
ABA Number 011000028.
BY MAIL. To purchase by mail, send a check made payable to Pennsylvania
Municipal Cash Trust-Institutional Shares to: Federated Services Company, P.O.
Box 8600, Boston, MA 02266-8600. Orders by mail are considered received when
payment by check is converted into federal funds. This is normally the next
business day after the check is received.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment is $25,000. However, an account may be opened
with a smaller amount as long as the minimum is reached within 90 days. Minimum
investments will be calculated by combining all accounts maintained with the
Fund. Financial institutions may impose different minimum investment
requirements on their customers.
SUBACCOUNTING SERVICES
Financial institutions are encouraged to open single master accounts. However,
certain financial institutions may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent charges a fee based on the level of subaccounting services
rendered. Financial institutions may charge or pass through subaccounting fees
as part of or in addition to normal fiduciary 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 or Federated Services Company in writing.
Monthly confirmations are sent to report transactions such as all purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
REDEEMING SHARES
- -----------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after Federated
Services Company receives the redemption request. Redemptions will be made on
days on which the Fund computes its net asset value. Redemption requests must
be received in proper form and can be made as described below.
BY MAIL
Shares may be redeemed in any amount by mailing a written request together with
properly endorsed certificates, if issued, to: Federated Services Company, P.O.
Box 8600, Boston, MA 02266-8600. The written request should state: Pennsylvania
Municipal Cash Trust-Institutional Shares; the account name as registered with
the Fund; the account number; and the number of shares to be redeemed or the
dollar amount requested. All owners of the account must sign the request
exactly as the shares are registered. Any share certificates should be sent by
registered or certified mail with the written request. Normally, a check for
the proceeds is mailed within one business day, but in no event more than seven
days, after receipt of a proper written redemption request. Dividends are paid
up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by: a
commercial or savings bank, trust company or savings and loan association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member of a domestic stock exchange; or any
other "eligible guarantor institution," as defined in the Securities Exchange
Act of 1934. The Fund does not accept signatures guaranteed by a notary public.
TELEPHONE REDEMPTION
Shares may be redeemed by telephoning the Fund. Telephone instructions may be
recorded and if reasonable procedures are not followed by the Fund, it may be
liable for losses due to unauthorized or fraudulent telephone instructions. An
authorization form permitting the Fund to accept telephone requests must first
be completed. Authorization forms and information on this service are available
from Federated Securities Corp.
If the redemption request is received before 12:00 noon (Eastern time), the
proceeds will be wired the same day to the shareholder's account at a domestic
commercial bank which is a member of the Federal Reserve System, and those
shares redeemed will not be 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.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption, such as "By Mail," should be considered. If at
any time the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account, except accounts maintained by retirement plans,
and pay the proceeds to the shareholder if the account balance falls below a
required minimum value of $25,000 due to shareholder redemptions.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
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 portfolio or class, only shares of that portfolio
or class are entitled to vote. As a Massachusetts business trust, the Trust is
not required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
the election of Trustees under certain circumstances. As of July 3, 1995, BHC
Securities, Inc., Philadelphia, PA, owned approximately 6,199,358 shares
(27.18%) of the voting securities of the Pennsylvania Municipal Cash Trust-Cash
Series Shares; and therefore, may, for certain purposes, be deemed to control
the Fund and be able to affect the outcome of certain matters presented for a
vote of shareholders.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting of the shareholders for this purpose shall be called
by the Trustees upon the written request of shareholders owning at least 10% of
the outstanding shares of the Trust.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument the Trust or its Trustees enter into
or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as
a shareholder will occur only if the Trust itself cannot meet its obligations
to indemnify shareholders and pay judgments against them.
TAX INFORMATION
- -----------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and
to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations.
The Fund may purchase all types of municipal bonds, including private activity
bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular
taxable income of the taxpayer increased by certain "tax preference" items not
included in regular taxable income and reduced by only a portion of the
deductions allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Pennsylvania. Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PENNSYLVANIA TAXES. The Fund received a ruling from the Commonwealth of
Pennsylvania Department of Revenue that interest or gain derived by the Fund
from obligations free from state taxation in Pennsylvania is not taxable on
pass-through to Fund shareholders for purposes of Pennsylvania personal income
taxes. This was based on the existence of the Pennsylvania Investment
Restrictions (see "Investment Limitations"). However, legislation enacted in
December 1993, eliminates the necessity of the Pennsylvania Investment
Restrictions. This legislation also generally repeals the Pennsylvania personal
income tax exemption for gains from the sale of personal income tax exemptions,
including the exemptions for distributions from the Fund to the extent that
they are derived from gains from tax-exempt obligations. Fund shares are exempt
from personal property taxes imposed by counties in Pennsylvania to the extent
that the Fund invests in obligations that are exempt from such taxes.
In the opinion of Houston, Houston & Donnelly, counsel to the Fund, the Fund is
not subject to Pennsylvania corporate or personal property taxes.
PERFORMANCE INFORMATION
- ----------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield, and
tax-equivalent yield for Institutional Shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this
assumed reinvestment. The tax-equivalent yield is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that would have to be
earned to equal Institutional Shares' tax-exempt yield, assuming a specific tax
rate.
Advertisements and sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in the shares after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed
as a percentage.
The performance figures will be calculated separately for each class of shares.
Because each class of shares is subject to different expenses, the performance
of Institutional Shares and Institutional Service Shares will exceed the
performance of Cash Series Shares for the same period.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare its
performance to certain indices.
OTHER CLASSES OF SHARES
- -----------------------------------------------------------------------
The Fund also offers other classes of shares called Cash Series Shares and
Institutional Service Shares which are all sold primarily to customers of
financial institutions subject to certain differences.
Cash Series Shares are sold at net asset value subject to a Rule 12b-1 Plan and
a Shareholder Services Plan. Investments in Cash Series Shares are subject to a
minimum initial investment of $10,000 over a 90-day period.
Institutional Service Shares are sold at net asset value and are subject to a
Shareholder Services Plan. Investments in Institutional Service Shares are
subject to a minimum initial investment of $25,000 over a 90-day period.
Cash Series Shares and Institutional Service Shares are subject to certain of
the same expenses. Expense differences, however, between Cash Series Shares,
Institutional Service Shares and Institutional Shares may affect the
performance of each class.
To obtain more information and a prospectus for Cash Series Shares,
Institutional Service Shares and Institutional Shares , investors may call
1-800-235-4669 or contact their financial institution.
ADDRESSES
- -----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Pennsylvania Municipal Cash Trust
Institutional Shares Federated Investors Tower
Pittsburgh, PA 15222-3779
---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, PA 15222-3779
---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, PA 15222-3779
---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, MA 02266-8600
---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
---------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
---------------------------------------------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL
CASH TRUST
INSTITUTIONAL SHARES
PROSPECTUS
A Non-Diversified Portfolio
of Federated Municipal Trust,
an Open-End Management
Investment Company
July 18, 1995
[logo] FEDERATED SECURITIES CORP.
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Cusip 314229717
G00214-01-IS (7/95) [LOGO]
PENNSYLVANIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH SERIES SHARES
INSTITUTIONAL SERVICE SHARES
INSTITUTIONAL SHARES
Combined Statement of Additional Information
This Combined Statement of Additional Information should be read with
the prospectuses of Cash Series Shares, Institutional Service Shares,
and Institutional Shares of Pennsylvania Municipal Cash Trust (the
"Fund"), a portfolio of Federated Municipal Trust (the "Trust") dated
February 28, 1995, February 28, 1995, and July 18, 1995, respectively.
This Statement is not a prospectus. To receive a copy of a prospectus,
write or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Revised Statement dated July 18, 1995
Federated Securities Corp.
Distributor
A subsidiary of Federated
Investors
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
When-Issued And Delayed Delivery
Transactions 1
Repurchase Agreements 1
PENNSYLVANIA INVESTMENT RISKS 2
INVESTMENT LIMITATIONS 2
Investing in Illiquid Securities 3
Investing in Securities of Other
Investment Companies 3
Investing in New Issuers 4
Investing for Control 4
Investing in Issuers Whose
Securities Are Owned by Officers
of the Fund 4
Investing in Options 4
Investing in Minerals 4
BROKERAGE TRANSACTIONS 4
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
Share Ownership 9
Trustees Compensation 10
Trustee Liability 10
Investment Adviser 10
Advisory Fees 11
FUND ADMINISTRATION 11
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 11
DISTRIBUTION AND SHAREHOLDER
SERVICES 12
DETERMINING NET ASSET VALUE 12
REDEMPTION IN KIND 13
THE FUND'S TAX STATUS 13
PERFORMANCE INFORMATION 13
Yield 13
Effective Yield 13
Tax-Equivalent Yield 13
Tax-Equivalency Table 14
Total Return 14
Performance Comparisons 15
ABOUT FEDERATED INVESTORS 15
Mutual Fund Market 15
Institutional 15
Trust Organizations 15
Broker/dealers and bank
broker/dealer subsidiaries 16
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by the
Trustees without shareholder approval. Shareholders will be notified before
any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security, the issuer of any demand feature applicable to the security, or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation
interests frequently provide or secure from another financial institution
irrevocable letters of credit or guarantees and give the Fund the right to
demand payment of the principal amounts of the participation interests plus
accrued interest on short notice (usually within seven days). The municipal
securities subject to the participation interests are not limited to the
Fund's maximum maturity requirements so long as the participation interests
include the right to demand payment from the issuers of those interests. By
purchasing these participation interests, the Fund is buying a security
meeting the maturity and quality requirements of the Fund and also is
receiving the tax-free benefits of the underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments
by a governmental or nonprofit entity. The lease payments and other rights
under the lease provide for and secure payments on the certificates. Lease
obligations may be limited by municipal charter or the nature of the
appropriation for the lease. Furthermore, a lease may provide that the
participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they became due.
In the event of a default or failure of appropriation, unless the
participation interests are credit enhanced, it is unlikely that the
participants would be able to obtain an acceptable substitute source of
payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Board of Trustees, will base its
determination on the following factors: whether the lease can be terminated by
the lessee; the potential recovery, if any, from a sale of the leased property
upon termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics and prospects);
the likelihood that the lessee will discontinue appropriating funding for the
leased property because the property is no longer deemed essential to its
operations (e.g., the potential for an "event of non-appropriation"); and any
credit enhancement or legal recourse provided upon an event of non-
appropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the
Fund's records at the trade date. These assets are marked to market daily and
are maintained until the transaction has been settled. The Fund does not
intend to engage in when-issued and delayed delivery transactions to an extent
that would cause the segregation of more than 20% of the total value of its
assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price. To the extent that the seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. The Fund or its custodian will take
possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. In the event that a defaulting
seller filed for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action. The Fund
believes that under the regular procedures normally in effect for custody of
the Fund's portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Trustees.
PENNSYLVANIA INVESTMENT RISKS
The Fund invests in obligations of the Commonwealth of Pennsylvania (the
"State") issuers which result in the Fund's performance being subject to risks
associated with the overall conditions present within the State. The following
information is a general summary of the state's financial condition and a
brief summary of the prevailing economic conditions. This information is based
on official statements relating to securities that are believed to be reliable
but should not be considered as a complete description of all relevant
information.
Fiscal operations improved gradually since the $1.1 billion deficit in 1991.
The deficit was nearly eliminated in 1992 with the addition of increased taxes
. During fiscal 1993, Pennsylvania focused on expenditure reductions while
revenues were stabilized and reserves were increased by $24 million. Fiscal
1994 saw further improvement in revenues and ended with a surplus of $336
million. Revenues are expected to increase slightly in fiscal 1995, but the
State has budgeted an increase in appropriations which will decrease the
Budget Stabilization Fund to $4.1 million due to the projected operating
deficit of $297 million. Also, it should be noted that due to the length and
severity of the 1991 recession, coupled with the structural changes in the
industrial landscape, several municipalities have undergone severe financial
stress and are still vulnerable to further economic cycles.
Historically, the State's economy was largely composed of heavy industry that
was concentrated in steel production, coal and railroads. The exposure to
these industries, especially the steel sector, has declined and the economy
has diversified into services and trade sectors. Presently, services and trade
compose over 50% of the economy. Unemployment in the State over the past two
years has surpassed the national average and population growth, as in many of
the industrial states, has been motionless.
The debt ratings further demonstrate the overall condition of the State. The
State maintains an A1 rating by Moody's that has been in effect since 1986.
Standard & Poors Ratings Group rates the State AA- since 1985.
The Fund's concentration in securities issued by the State and its political
subdivisions provides a greater level of risk than a fund whose assets are
diversified across numerous states and municipal issuers. The ability of the
State or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political, and demographic
conditions within the State; and the underlying fiscal condition of the State,
its counties, and its municipalities.
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as are necessary for
clearance of transactions.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may
borrow money in amounts up to one-third of the value of its total
assets, including the amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings in excess of 5% of its total assets are
outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings. In those cases, it may pledge
assets having a market value not exceeding the lesser of the dollar
amounts borrowed or 15% of the value of total assets at the time of the
pledge.
Diversification of Investments
At the close of each quarter of each fiscal year, no more than 25% of
the Fund's total assets will be invested in the securities of a single
issuer, but, with regard to at least 50% of the Fund's total assets, no
more than 5% of the Fund's total assets are to be invested in securities
of a single issuer.
Under this limitation, each governmental subdivision, including states,
territories, possessions of the United States, or their political
subdivisions, agencies, authorities, instrumentalities, or similar
entities, will be considered a separate issuer if its assets and
revenues are separate from those of the government body creating it and
the security is backed only by its own assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
nongovernmental issuer are considered to be issued solely by that
issuer. If in the case of an industrial development bond or government-
issued security, a governmental or other entity guarantees the security,
such guarantee would be considered a separate security issued by the
guarantor, as well as the other issuer, subject to limited exclusions
allowed by the Investment Company Act of 1940.
Lending Cash or Securities
The Fund will not lend any of its assets except that it may acquire
publicly or non publicly issued Pennsylvania municipal securities or
temporary investments or enter into repurchase agreements, in accordance
with its investment objective, policies, limitations, and the Trust's
Declaration of Trust.
Investing in Commodities
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
Investing in Restricted Securities
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of 1933.
Investing in Real Estate
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in securities of issuers
whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
Underwriting_
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
Concentration of Investments
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets in any one industry or in
industrial development bonds or other securities, the interest upon
which is paid from revenues of similar types of projects. However, the
Fund may invest as temporary investments more than 25% of the value of
its assets in cash or cash items, securities issued or guaranteed by the
U.S. government, its agencies, or instrumentalities, or instruments
secured by these money market instruments, such as repurchase
agreements.
The above limitations cannot be changed without shareholder approval. The
following investment limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, and certain restricted
securities.
Investing in Securities of Other Investment Companies
The Fund will not purchase securities of other investment companies,
except as part of a merger, consolidation, or other acquisition.
Investing in New Issuers
The Fund will not invest more than 5% of the value of its total assets
in securities of issuers (including companies responsible for paying
principal and interest on industrial development bonds) which have
records of less than three years of continuous operations, including the
operation of any predecessor.
Investing for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
Investing in Issuers Whose Securities Are Owned by Officers of the Fund
The Fund will not purchase or retain the securities of any issuer if the
Officers and Trustees of the Fund or its investment adviser owning
individually more than .50 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
Investing in Options
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
Investing in Minerals
The Fund will not purchase or sell interests in oil, gas, or other
mineral exploration or development programs or leases, although it may
purchase the securities of issuers which invest in or sponsor such
programs.
For purposes of the above limitations, the Fund considers instruments issued
by a U.S. branch of a domestic bank or savings and loan having capital,
surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items." Except with respect to borrowing money, if a
percentage limitation is adhered to at the time of investment, a later
increase or decrease in percentage resulting from any change in value or net
assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the
value of its net assets during the last fiscal year and has no present intent
to do so during the coming fiscal year.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order at
a favorable price. In working with dealers, the adviser will generally use
those who are recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained elsewhere. The
adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to guidelines established by the Board of Trustees. The
adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
adviser and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services.
Research services provided by brokers and dealers may be used by the adviser
or its affiliates in advising the Trust and other accounts. To the extent
that receipt of these services may supplant services for which the adviser or
its affiliates might otherwise have paid, it would tend to reduce their
expenses. The adviser and its affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research services to
execute securities transactions. They determine in good faith that
commissions charged by such persons are reasonable in relationship to the
value of the brokerage and research services provided. During the fiscal years
ended October 31, 1994, 1993 and 1992, the Fund paid no brokerage commissions.
Although investment decisions for the Fund are made independently from those
of the other accounts managed by the adviser, investments of the type the Fund
may make may also be made by those other accounts. When the Fund and one or
more other accounts managed by the adviser are prepared to invest in, or
desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, present positions with
Federated Municipal Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing General
Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue,
Vice President of the Trust.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital
of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds;
formerly, President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds; formerly, Director, Blue Cross of
Massachusetts, Inc.
Lawrence D. Ellis, M.D. *
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Partner, Henny, Kochuba, Meyer and Flaherty; Director, Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Peter E. Madden
225 Franklin Street
Boston, MA
Birthdate: April 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation and Trustee,
Lahey Clinic Foundation, Inc.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Partner, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Mur
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak 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
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing General
Partner of the Funds.
_____________________________________________________________________________
__________________________
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp. and Federated Administrative
Services.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp.; President, Passport Research, Ltd.; Trustee, Federated
Administrative Services, Federated Services Company, and Federated
Shareholder Services; President or Vice President of the Funds; Director,
Trustee, or Managing General Partner of some of the Funds. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice President, Treasurer, and Trustee, Federated Investors; Vice President
and Treasurer, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Executive Vice
President, Treasurer, and Director, Federated Securities Corp.; Trustee,
Federated Services Company and Federated Shareholder Services; Chairman,
Treasurer, and Trustee, Federated Administrative Services; Trustee or Director
of some of the Funds; Executive Vice President or President of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and Secretary, Federated
Research Corp. and Passport Research, Ltd.; Trustee, Federated Services
Company; Executive Vice President, Secretary, and Trustee, Federated
Administrative Services; Secretary and Trustee, Federated Shareholder
Services; Executive Vice President and Director, Federated Securities Corp.;
Vice President and Secretary of the Funds.
David M. Taylor *
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President, Controller, and Trustee, Federated Investors;
Controller, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Senior Vice President,
Federated Shareholder Services; Senior Vice President, Federated
Administrative Services; Treasurer of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of
Trustees between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Cash Management Trust; Automated Government Money
Trust; California Municipal Cash Trust; Cash Trust Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated Growth Trust; Federated High
Yield Trust; Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Institutional Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated Municipal Trust; Federated
Short-Intermediate Government Trust; Federated Short-Term U.S. Government
Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S.
Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities,
Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Insight
Institutional Series, Inc.; Insurance Management Series; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income
Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty U.S.
Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty
Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; New York Municipal Cash
Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument
Funds; The Shawmut Funds; Short-Term Municipal Trust; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust For Government Cash Reserves; Trust
for Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; The Virtus Funds; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund's outstanding
shares.
As of July 3, 1995, the following shareholder of record owned 5% or more of
the outstanding Cash Series Shares of the Fund: BHC Securities Inc.,
Philadelphia, PA, owned approximately 6,199,358 shares (27.18%);
As of July 3, 1995, the following shareholders of record owned 5% or more of
the outstanding Institutional Service Shares of the Fund: Meridian Asset
Management, Reading, PA, owned approximately 35,026,203 shares (12.36%);
Integra Trust Services, Pittsburgh, PA, owned approximately 24,029,717 shares
(8.48%); Keystone Financial Inc., Altoona, PA, owned approximately 18,678,200
shares (6.59%); Anderson & Co., Philadelphia, PA, owned approximately
43,031,159 shares (15.18%); Saxon & Co., Philadelphia, PA, owned
approximately 19,435,482 shares (6.86%); and Melon Bank Capital Markets,
Pittsburgh, PA, owned approximately 20,827,717 shares (7.35%)
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM TRUST AND FUND COMPLEX +
John F. Donahue, $ -0- $ 0- for theTrust and
Chairman and Trustee 68 other investment companies
in the Fund Complex
Thomas G. Bigley, $ 719.00 $20,688 for the Trust and
Trustee 49 other investment companies
in the Fund Complex
John T. Conroy, Jr., $ 4,757.00 $117,202 for the Trust and
Trustee 64 other investment companies
in the Fund Complex
William J. Copeland, $ 4,757.00 $117,202 for the Trust and
Trustee 64 other investment companies
in the Fund Complex
James E. Dowd, $ 4,757.00 $117,202 for the Trust and
Trustee 64 other investment companies
in the Fund Complex
Lawrence D. Ellis, M.D., $ 4,308.00 $106,460 for the Trust and
Trustee 64 other investment companies
in the Fund Complex
Edward L. Flaherty, Jr., $ 4,757.00 $117,202 for the Trust and
Trustee 64 other investment companies
in the Fund Complex
Glen R. Johnson, $ -0- $ -0- for the Trust and
President and Trustee 8 other investment companies
in the Fund Complex
Peter E. Madden, $ 4,308.00 $90,563 for the Trust and
Trustee 64 other investment companies
in the Fund Complex
Gregor F. Meyer, $ 4,308.00 $106,460 for the Trust and
Trustee 64 other investment companies
in the Fund Complex
John E. Murray, Jr., $ -0- $ -0- for the Trust and
Trustee 65 other investment companies
in the Fund Complex
Wesley W. Posvar, $ 4,308.00 $106,460 for the Trust and
Trustee 64 other investment companies
in the Fund Complex
Marjorie P. Smuts, $ 4,308.00 $106,460 for the Trust and
Trustee 64 other investment companies
in the Fund Complex
*Information is furnished for the fiscal year ended October 31, 1994.
#The aggregate compensation is provided for the Trust which is comprised of 13
portfolios at October 31, 1994.
+The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife and his
son, J. Christopher Donahue.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended
October 31, 1994, 1993, and 1992, the adviser earned $1,617,472, $1,740,351,
and $1,718,171, respectively, of which $53,564, $415,874, and $415,265,
respectively, was voluntarily waived.
State Expense Limitations
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets,
2% per year of the next $70 million of average net assets, and 1-1/2%
per year of the remaining average net assets, the adviser will reimburse
the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fees.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. Prior to March 1, 1994, Federated Administrative
Services, Inc., also a subsidiary of Federated Investors, served as the Fund's
Administrator. (For purposes of this Statement of Additional Information,
Federated Administrative Services and Federated Administrative Services, Inc.
may hereinafter collectively be referred to as the "Administrators".) For the
fiscal year ended October 31, 1994, the Administrators collectively earned
$274,571. For the fiscal years ended October 31, 1993 and 1992, Federated
Administrative Services, Inc. earned $338,801 and $293,498.
Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the
Fund, holds approximately 20% of the outstanding common stock and serves as a
director of Commercial Data Services, Inc., a company which provides computer
processing services to Federated Administrative Services.
Transfer Agent and Dividend Disbursing Agent
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Fund. The fee paid to the transfer agent is based upon the
size, type and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records. The
fee paid for this service is based upon the level of the Fund's average net
assets for the period plus out-of-pocket expenses.
DISTRIBUTION AND SHAREHOLDER SERVICES
With respect to Cash Series Shares, the Fund had adopted a Distribution Plan
pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange
Commission pursuant to the Investment Company Act of 1940. Additionally, the
Fund has a Shareholder Services Agreement with respect to Institutional
Shares, Cash Series Shares, and Institutional Service Shares.
These arrangements permit the payment of fees to financial institutions to
stimulate distribution activities and services to shareholders provided by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities,
and various clerical, supervisory, computer, and other personnel as necessary
or beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and
assisting clients in changing dividend options, account designations, and
addresses.
By adopting the Distribution Plan, the Board of Trustees expects that the Fund
will be able to achieve a more predictable flow of cash for investment
purposes and to meet redemptions. This will facilitate more efficient
portfolio management and assist the Fund in pursuing its investment objective.
By identifying potential investors whose needs are served by the Fund's
objective, and properly servicing these accounts, it may be possible to curb
sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include:
(1) providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; (3) enhancing
shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal period ending October 31, 1994, payments in the amount of
$86,023 were made pursuant to the Distribution Plan, of which $33,738 was
waived. In addition, for this period, payments in the amount of $33,738 were
made pursuant to the Shareholder Services Plan on behalf of Cash Series
Shares.
Custodian and Portfolio Recordkeeper. State Street Bank and Trust Company,
Boston, MA, is custodian for the securities and cash of the Fund. It also
provides certain accounting and recordkeeping services with respect to the
Fund's portfolio investments.
Transfer Agent. As transfer agent, Federated Services Company, Boston, MA,
maintains all necessary shareholder records. For its services, the transfer
agent receives a fee based on size, type and number of accounts and
transactions made by shareholders.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of
the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher than
a similar computation made by using a method of valuation based upon market
prices and estimates. In periods of rising interest rates, the opposite may be
true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed
for purposes of distribution and redemption, at $1.00 per share, taking into
account current market conditions and the Fund's investment objective. The
procedures include monitoring the relationship between the amortized cost
value per share and the net asset value per share based upon available
indications of market value. The Trustees will decide what, if any, steps
should be taken if there is a difference of more than 0.5 of 1% between the
two values. The Trustees will take any steps they consider appropriate (such
as redemption in kind or shortening the average portfolio maturity) to
minimize any material dilution or other unfair results arising from
differences between the two methods of determining net asset value.
REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within
a 90-day period. Any redemption beyond this amount will also be in cash
unless the Trustees determine that further payments should be in kind. In
such cases, the Fund will pay all or a portion of the remainder of the
redemption in portfolio instruments valued in the same way as the Fund
determines net asset value. The portfolio instruments will be selected in a
manner that the Trustees deem fair and equitable. Redemption in kind is not
as liquid as a cash redemption. If redemption is made in kind, shareholders
who sell these securities could receive less than the redemption value and
could incur certain transaction costs.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of
its gross income from dividends, interest, and gains from the sale of
securities; derive less than 30% of its gross income from the sale of
securities held less than three months; invest in securities within certain
statutory limits; and distribute to its shareholders at least 90% of its net
income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average
portfolio maturity; type of instruments in which the portfolio is invested;
changes in interest rates; changes in expenses; and the relative amount of
cash flow. To the extent that financial institutions and broker/dealers charge
fees in connection with services provided in conjunction with an investment in
shares of the Fund, the performance will be reduced for those shareholders
paying those fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding
capital changes but including the value of any additional shares purchased
with dividends earned from the original one share and all dividends declared
on the original and any purchased shares; dividing the net change in the
account's value by the value of the account at the beginning of the base
period to determine the base period return; and multiplying the base period
return by 365/7.
For the seven-day period ended October 31, 1994, the yields for Cash Series
Shares and Institutional Service Shares were 2.47% and 2.87%, respectively.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base period
return by: adding 1 to the base period return; raising the sum to the 365/7th
power; and subtracting 1 from the result.
For the seven-day period ended October 31, 1994, the effective yields for Cash
Series Shares and Institutional Service Shares were 2.50% and 2.91%,
respectively.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield but
is adjusted to reflect the taxable yield that the Fund would have had to earn
to equal its actual yield, assuming a 39.6% tax rate (the maximum effective
federal rate for individuals) and assuming that income is 100% exempt.
For the seven-day period ended October 31, 1994, the tax-equivalent yields for
Cash Series Shares and Institutional Service Shares were 4.34% and 5.05%,
respectively.
TAX-EQUIVALENCY TABLE
A tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax,* and is often free from state
and local taxes as well. As the table below indicates, a "tax-free"
investment can be an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1995
COMMONWEALTH OF PENNSYLVANIA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
17.80% 30.80% 33.80% 38.80% 42.40%
JOINT $1- $39,001- $94,251- $143,601- OVER
RETURN 39,000 94,250 143,600 256,500 256,500
SINGLE $1- $23,351- $56,550- $117,951- OVER
RETURN 23,350 56,550 117,950 256,500 $256,500
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.82% 2.17% 2.27% 2.45% 2.60%
2.00% 2.43% 2.89% 3.02% 3.27% 3.47%
2.50% 3.04% 3.61% 3.78% 4.08% 4.34%
3.00% 3.65% 4.34% 4.53% 4.90% 5.21%
3.50% 4.26% 5.06% 5.29% 5.72% 6.08%
4.00% 4.87% 5.78% 6.04% 6.54% 6.94%
4.50% 5.47% 6.50% 6.80% 7.35% 7.81%
5.00% 6.08% 7.23% 7.55% 8.17% 8.68%
5.50% 6.69% 7.95% 8.31% 8.99% 9.55%
6.00% 7.30% 8.67% 9.06% 9.80% 10.42%
NOTE: THE MAXIMUM MARGINAL TAX RATE FOR EACH BRACKET WAS USED IN
CALCULATING THE TAXABLE YIELD EQUIVALENT. FURTHERMORE, ADDITIONAL STATE
AND LOCAL TAXES PAID ON COMPARABLE TAXABLE INVESTMENTS WERE NOT USED TO
INCREASE FEDERAL DEDUCTIONS.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
*Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a
given period that would equate a $1,000 initial investment to the ending
redeemable value of that investment. The ending redeemable value is computed
by multiplying the number of shares owned at the end of the period by the net
asset value per share at the end of the period. The number of shares owned at
the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, adjusted over the period by any
additional shares, assuming the monthly reinvestment of all dividends and
distributions.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index
used, prevailing market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute offering price. The
financial publications and/or indices which the Fund uses in advertising may
include:
O LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories
based on total return, which assumes the reinvestment of all income
dividends and capital gains distributions, if any.
o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market
funds weekly. Donoghue's MONEY MARKET INSIGHT publication reports
monthly and 12-month-to-date investment results for the same money
funds.
o MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
About Federated Investors
Federated is dedicated to meeting investor needs which is reflected in its
investment decision making--structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of
thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors.
In the municipal sector, as of December 31, 1994, Federated managed 18 bond
funds with approximately $1.9 billion in assets and 18 money market funds
with approximately $6.6 billion in total assets. In 1976, Federated
introduced one of the first municipal bond mutual funds in the industry and
is now one of the largest institutional buyers of municipal securities.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and
high yield corporate bond management while William D. Dawson, Executive
Vice President, oversees Federated's domestic fixed income management.
Henry A. Frantzen, Executive Vice President, oversees the management of
Federated's international portfolios.
Mutual Fund Market
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $2 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
Institutional
Federated meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for
a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients
is headed by John B. Fisher, President, Institutional Sales Division.
Trust Organizations
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
*source: Investment Company Institute
Broker/dealers and bank broker/dealer subsidiaries
Federated mutual funds are available to consumers through major brokerage
firms nationwide--including 200 New York Stock Exchange firms--supported by
more wholesalers than any other mutual fund distributor. The marketing
effort to these firms is headed by James F. Getz, President, Broker/Dealer
Division.
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